North American Wrap-up: Yellen Me Softly

Yellen Me Softly

We’ve reached the halfway point of the North American trading week, and today was much less volatile than the previous day.  Where yesterday’s price action was dominated by concerns of conflict for half the day, then government economic expectations for the other half; today’s volatility paled in comparison despite the specter of more important scheduled happenings.  Two very important monetary figures, the Bank of Canada’s Stephen Poloz and the Federal Reserve’s Janet Yellen, were scheduled to give speeches that directly related to the monetary policies of their nations, and neither did much to sway the markets in either direction.

Starting with Poloz, the BoC kept interest rates steady at 1% and mentioned in its statement that they expect gradual strengthening in their economy.  The only point of contention from the whole production was when Poloz mentioned that they haven’t shut the door on rate cuts, but the USD/CAD only surged about 30-40 pips on that comment and had virtually no follow through.  The currency pair has remained anchored near the 1.10 psychological level and could remain there for the rest of the week as liquidity begins to dry up ahead of Good Friday.

As for Yellen, well, she did a fantastic job of fence straddling as she insisted that her institution was nowhere near thinking about raising interest rates.  The initial dovish rhetoric was balanced out with some discussion about when they actually would raise interest rates, of which mid-2015 seems to be the consensus.  If anyone was looking for anything substantial, they were sorely disappointed as Yellen gave no more hints about much of anything.

It seems Yellen has learned her lesson from the first press conference she gave as Chair of the Fed when she specifically mentioned that interest rates would be increased somewhere around six months after Quantitative Easing came to a close.  The specificity in that statement was a surprise to market participants who have become accustomed to very vague language and opaque timelines from the Fed.  The return to non-specific qualifiers seemed to give the market a little nudge as equity markets and the USD were stronger throughout the day in most arenas on the basis that easy policy will be here for a while.

Yellen’s speech wasn’t the only Fed related topic of the day though as the Beige Book was released in the afternoon hours.  In emulation to its name, the Beige Book had very little impact on markets, mainly reporting that the weather was bad previously and that the weather is getting better.  Weather was mentioned a mere 103 times in this iteration whereas it was mentioned 119 times in March’s report.  The previous three reports before that only mentioned weather 27 times, so it appears we are heading in the right direction to eliminate weather as an excuse for moderation.

Looking Forward                                                                       

The economic calendar is very thin for the rest of the trading week, but Australia has a couple of releases that could shake things up a bit.  Both Business Confidence and New Motor Vehicle Sales will be released at 9:30pm ET, and both have enjoyed recent improvements in line with the increased confidence from the Reserve Bank of Australia.  In fact, Business Confidence rose to its highest level since the first quarter of 2011 and if it can continue on its march higher could spark another rally in the AUD/USD and potentially test this week’s highs near 1.9420.