Were central banks busy or what! In case you missed them, let’s take a trip down memory lane and review the latest monetary policy decisions of the BOC, ECB, RBNZ, Fed, BOJ, and the BOE. What were their major concerns and how have their decisions affected their forex price action?
BOC: “Time for a rate c… nevermind.”
Stephen Poloz and his gang over at the Bank of Canada (BOC) started the rounds by admitting that while they didn’t cut rates this month, it was a close call for the team.
The BOC was worried over low inflation and oil prices, enough to downgrade its growth and inflation forecasts. A bit of economic optimism and concern for the Canadian dollar’s stability won out though, and the members ended up keeping its rates at 0.50%. The Loonie shot up across the board at the news, mostly due to the BOC’s effectiveness in communicating its optimism.
ECB: “Super Mario? Nah. Meet Doomsday Draghi!”
The European Central Bank (ECB) made no changes to its policies, maintaining its current rates while its QE program was also untouched from its December parameters.
ECB head honcho Mario Draghi grabbed the headlines though, when he all but announced more ECB easing down the road. Pointing to low oil prices and its possible “second-round effects” on the economy, Draghi stated that the ECB will likely review and possibly consider its stance next month.
Euro bears took home the bacon that day with the euro recording sharp losses against its counterparts. Draghi’s speeches over the next couple of days also reinforced his dovish tone, as he repeated his hints that he and his buddies won’t hesitate to push the pedal to the metal to stimulate economic activity.
RBNZ: “We got our eyes on more rate cuts.”
The Reserve Bank of New Zealand (RBNZ) didn’t make as many waves as the BOJ, but we also didn’t miss RBNZ Governor Graeme Wheeler’s dovish notes. The central bank kept its interest rates at 2.50% but warned that monetary policy needs to remain loose.
Wheeler pointed to a cocktail mix of low dairy prices, uncertainty over China’s growth and volatility in the global financial markets, but emphasized that it’s low inflation that we need to watch out for. The central bank’s willingness to ease some more and to welcome a weaker local currency sent the bulls running and weighed on the Kiwi across the board.
Fed: “Check yo self before you wreck yourself!”
The Fed didn’t conduct a press conference on FOMC statement day, but the central bank highlighted a couple of concerns in its document. Apparently, Janet Yellen and her friends aren’t too excited over their low growth estimates and the potential impact of low inflation on the economy. On top of that, the central bank also sounded more worried over global economic and financial developments.
This is probably why Fed officials gave interviews left and right over the next couple of days and hinted that we won’t see any more rate hikes, at least not until we see improvements in inflation. Not surprisingly, the dollar became the punching bag of forex traders and it lost tons of pips against its major counterparts.
BOJ: “Release the NEGATIVE interest rates!”
The Bank of Japan (BOJ) stepped up its stimulus game last week when it added NEGATIVE interest rates to its arsenal. As detailed in my Q&A recap, the central bank will start charging financial institutions for balances that aren’t being used for market activity. Talk about meaning business!
The yen sputtered at the news and showed multi-hundred pip spikes across the board before overall risk aversion in the markets brought the yen back in Vogue faster than you can say “pips.” It also didn’t help that the idea of using negative interest rates isn’t a new one, or that it hinted that the BOJ is simply running out of bullets to stimulate the economy.
BOE: “We’ll hike rates…when the time is right.”
The Bank of England (BOE) ended this month’s central bank show with a bang when Governor Mark Carney and his friends turned out to be more dovish than analysts had expected. Aside from Ian McCafferty –the lone rate hike caller –switching over to the dove camp, the BOE had also lowered its growth and inflation forecasts and relayed its concerns over the U.K.’s trade outlook and feeble wage growth.
The only bright spot in the BOE’s “Super Thursday” is Mark Carney reiterating that the BOE is still very much on a rate hike mood even though we might not see any of it over the next couple of months. Still, the surprisingly dovish adjustments took their toll on the pound and dragged it lower against its major counterparts.
That’s it for this week’s central bank roundup! Were you able to spot any common themes among the central banks’ decisions? Which one is likely to hike or cut rates first? Share your thoughts on the comment box below!