Forex Recap: Central Bank Decisions

Now that the major central banks have rolled out their plans, it’s time to gather our notes and review their main points. Here’s all forex traders need to know about this month’s decisions.

BOC: “The sidelines are looking pretty good.”

As hinted last month, Bank of Canada (BOC) Governor Stephen Poloz and his gang are comfortable with the status quo until the government rolls out its fiscal plan. The central bank kept its rates at 0.50% with its bank rate steady at 0.75% and deposit rate at 0.25%.

Though the BOC recognized the lingering impact of lower oil prices on Canada’s employment, energy exports, and business investment, it also communicated its optimism by pointing out that global financial market volatility has abated and that oil is on the upswing again.

More importantly, it’s waiting on the government to unlock some moolah for the economy. Recall that the Liberal government had promised as much as 10B CAD worth of projects in the next two fiscal years, something that’s expected to have more impact than a rate cut. These, as well as the lack of jawboning from Poloz, suggested that the BOC isn’t easing anytime soon. Naturally, the Loonie bulls went nuts and boosted the high-yielding currency across the board.

RBNZ: “Bet you didn’t see that coming!”

The Reserve Bank of New Zealand (RBNZ) cut its rates from 2.50% to 2.25%, a move that caught market players by surprise as Governor Wheeler veered expectations away from such a move as late as February. The RBNZ had also downgraded its inflation forecasts AND threatened more rate cuts if needed. Talk about a triple roundhouse kick!

The central bank cited material weaknesses in its inflation measures, deteriorating growth prospects of its major trading partners *cough* China and Europe *cough*, and lower commodity prices as its reasons for cutting its rates. It also wasn’t happy about the stronger value of the Kiwi and rate cuts from other major economies.

Overall the move was seen as a pre-emptive action to prevent a self-fulfilling deflationary spiral. Still, the Kiwi fell sharp and hard across the board thanks to the surprising nature of the cut.

ECB: “First a little, then a lottle.”

Unless you’ve been living under a rock, then you should know that the European Central Bank (ECB) threw the kitchen sink at the euro zone’s inflation problem by cutting ALL of its interest rates, bumping up its asset purchases, and introducing new long-term refinancing options.

Unlike with the RBNZ, market players weren’t surprised by the ECB’s decision. Heck, Governor Mario Draghi all but hinted at them in his speech last month! What did surprise investors was Draghi announcing that the ECB isn’t likely to add fuel to the fire anytime soon. Not surprisingly, the prospect of no further easing from the central bank sent the euro through the roof against its counterparts.

BOJ: “Chillin’ like wasabi-flavored ice cream villain”

After implementing a negative interest rate policy (NIRP) last month, the Bank of Japan (BOJ) decided to step back and keep its policies steady this time around. This isn’t surprising, since a meeting minutes release revealed that the NIRP idea passed by a hair’s breadth with 4 out of 9 saying “nay” to it.

The lack of follow through put a dent on the BOJ’s rep and sent the yen higher against its major counterparts. BOJ Governor Kuroda backtracked in the following days and said that cutting their rates deeper into negative territory is “theoretically possible,” but the damage had already been done.

Fed: “Retreat, retreat!!!”

The most anticipated event this week didn’t disappoint volatility hunters, as Janet Yellen and her gang hinted that their next rate hike is much farther than what many market players had expected.

Aside from lowering its growth and inflation forecasts, the Fed had also mentioned its worries over oil prices and the global economy, as well as Uncle Sam’s inflation, exports, and business fixed investments. In fact, these concerns worried the members so much that they’re now expecting an average of TWO rate hikes until the end of the year, half as many as they had expected back in December. Yikes!

The dollar ended up taking major hits against its counterparts. And that was BEFORE Yellen took to the mic to downplay the improvements in the employment sector and hinted that the Fed could and would add more stimulus if needed. Overkill or nah?

SNB: “Back to regular programming”

In its first monetary policy announcement this year, the Swiss National Bank (SNB) had kept its interest rates unchanged at -0.75% and its three-month LIBOR target range steady at -1.25% to -0.25%.

The central bank downgraded its inflation forecasts from -0.5% to -0.8% for 2016, citing the recent slump in oil prices and low global inflation levels. It also cut growth estimates from 1.5% to around 1.25% due to a “more modest pace of global economic growth.”

Lastly, the SNB maintained its view that the franc is “significantly overvalued,” and that the gang is ready to intervene in the forex markets if necessary. The franc got a small boost from the decision, though the moves could also be due to overall risk aversion rather than the SNB’s slight jawboning.

BOE: “Beware the big bad Brexit”

For a second month in a row, all 9 players in the Bank of England’s (BOE) Monetary Policy Committee (MPC) unanimously voted to keep their policies steady. Interest rates remain is still at a record low of 0.50% while asset purchases are kept at 375billion GBP.

The BOE said that its short-term inflation outlook hasn’t changed much since February, but it did bump up its growth forecasts from 2.0% to 2.2% in 2016 and 2.2% to 2.3% in 2017, and maintained its stance that the next move is likely a rate hike than a cut.

Mark Carney spent the rest of his air time talking about the impact of Brexit, saying that it has dragged the pound lower for months, and that the uncertainty until the referendum vote in June has delayed spending decisions and aggregate demand in the near-term. Still, the lack of more dovish remarks from the central bank was enough to energize the bulls into boosting the pound higher for the rest of the day.

That’s it for this week’s central bank roundup! Were you able to take advantage of these events? Which central bank do you think will rock the markets next? Share your thoughts on the comment box below!