In case you missed it, the central bank bonanza this week delivered a couple of surprises to markets as both the RBA and BOC decided to raise interest rates instead of keeping on the sidelines:
- RBA surprises with 25 bps rate hike, cash rate raised to 4.10%
- Bank of Canada overnight rate 4.75% vs 4.50% prior
The latter in particular led a turnaround in the Treasuries market yesterday as bond yields jumped higher and that took USD/JPY back above 140.00. The pair is back down lower now to 139.75 as the back and forth action continues though, and keep in mind also that there are large expiries at play at the figure level today.
Going back to broader market sentiment, the rate hike surprises this week won't help to ease fears that the Fed might just deliver one on its own next week. The odds for that sit at around 31% currently but that's a sort of coin flip already when you consider the nature of Fed funds futures pricing.
It is the case that more often than not, markets will have already made up its mind on what the Fed might and will do. However, this time around there is increased ambiguity and that won't help with the waiting and wondering at the moment.
And that will sort of keep markets on edge i.e. little to no firm direction, as we await the US CPI first before the Fed decision itself next week.