Forex Snapshot: Major Central Bank Policies and Biases

Now that the dust has settled on the Fed’s decision, it’s time to take a snapshot of the latest policy decisions and biases of the major central banks. Check it!

Central Bank Policy Decision On Growth On Inflation On Its Currency
BOC Interest rates still at 1.00% but BOC Gov. Poloz isn’t ruling out a rate cut if downside inflation risks increase. Extreme weather, post-recession concerns, and the Baby Boomers holding tight to their money are crimping Canada’s growth prospects. Slow growth might be the new norm. Overall and core inflation would remain below its 2% target throughout 2014, and rise to 2% in about two years. Poloz hasn’t seen a remarkable impact of the recent Loonie weakness on Canada’s exports yet.
BOE Interest rates and asset purchasing program are still at 0.50% and 375B GBP respectively. Unemployment rate threshold of 7.0% was dropped in favor of a broader range of economic indicators. There is broader growth from household to business spending but there’s still “some way to go” before growth is balanced and sustainable. Inflation isn’t expected to rise above 2.5% over the next 18 to 24 months. A strong pound is one of the reasons why inflation isn’t expected to rise above the BOE’s preferred ranges anytime soon.
BOJ Interest rates are still at record lows and annual asset purchases are still at 60-70 trillion. However, the BOJ warns that it could adjust its policy “without hesitation” the inflation rate starts to falter. A positive economic cycle involving production, income, and spending is in place. The economy is expected to exceed its 0.5% growth potential despite the possible drag of the sales-tax hike. Inflation is on track to reach its 2% target by late 2014 or early 2015. BOJ’s Kiuchi said if the yen weakens further it could make imports too expensive and slow consumer spending, which would be a negative for the economy.
ECB Interest rates were kept at 0.25% and Draghi shrugged off rumors of more stimulus by saying that they have not seen developments in the money markets that warrant action. Interest rates will likely stay low “for an extended period of time.” The ECB needs to get “more information” on growth before making any decision. In general though, Draghi and his gang believe that the euro region will return to full-year growth this year. The ECB expects a 1.7% inflation rate by Q4 2016, a leap from the 0.8% growth in February. A strong euro is adding to the disinflationary effect that the ECB is trying to combat.
Fed Monthly asset purchases decreased by another $10B to $55B. 6.5% unemployment rate threshold scrapped in favor of qualitative easing. Rate hikes could happen around 6 months after the end of QE. The Fed expects to see 2.8% to 3% growth this year, down from their previous estimate of 2.8% to 3.2%. Uncle Sam will expand by 3% to 3.2% next year then by 2.5% to 3% in 2016. Inflation continues to run below the central bank’s 2% objective. No remarkable comments on the Greenback although Yellen’s comments were decidedly USD-bullish.
RBA Interest rates are kept at 2.50% with the RBA saying that a “period of stability” in rates is appropriate. Growth is expected to stay below trend in 2014. Domestic costs and slower wage growth are expected to keep inflation consistent with the target, even with lower levels of exchange rate. The Aussie is still “high by historical standards.”
RBNZ Hiked interest rates from 2.50% to 2.75% last month with hints of more rate hikes to come. Growth in 2014 is seen at 3.0%, up from its 2.8% estimates in December. The economy is then expected to pick up by 3.0% to 3.50% in 2015 before it levels off to a 2.3% growth rate in 2017. Inflation is expected to rise by 1.9% by the end of 2014, up from its previous estimates of 1.5%. Meanwhile, inflation estimates for 2015 and 2016 are both at 2.1%. The Kiwi’s current levels are “sustainable in the long run.”
SNB Interest rates kept at 0.00% to 0.25% with a warning that the SNB is prepared to buy “unlimited quantities” of foreign currencies to defent EUR/CHF’s 1.2000 floor. The SNB confirmed its forecast that the Swiss economy will grow by around 2.0% in 2014. The SNB sees its baseline inflation rate below 1%, below its 2% target rate through the next two years but is prepared to take necessary steps to combat low inflation. The Swiss Franc is high and is delaying inflationary rise.

There you have it, folks! I hope the summary above will help you place your trades in the days and weeks to come!