Central bank officials sure know how to rock the forex markets, huh? Heck, any mention of interest rates or monetary policy biases are enough to push currency pairs around! Here’s what you absolutely need to know about the latest set of announcements.
1. BOC Governor Poloz
Bank of Canada Governor Stephen Poloz got the ball rolling early on in the week, as he highlighted the improvements in the Canadian economy during his testimony. Aside from acknowledging that their surprise interest rate cut in January is having its intended effect in supporting inflation and business activity, he also hinted that further rate cuts don’t seem to be necessary anymore.
Poloz also expressed optimism about the ongoing economic recovery in the U.S., which is one of Canada’s top trading partners. For most forex analysts, this is an extra vote of confidence for Canada, as it typically enjoys a positive spill over effect from U.S. developments.
2. RBA Governor Stevens
Reserve Bank of Australia Governor Glenn Stevens was in a completely different mood compared to BOC Governor Poloz during his speech that same day. Stevens decided to focus on the challenges facing the Australian economy and grabbed the opportunity to jawbone their currency once more. He even revealed that RBA policymakers came close to cutting interest rates in their previous meeting and that this scenario could be replayed in May.
Minutes of the RBA meeting released the next day echoed this downbeat sentiment. “Further easing of policy may be appropriate over the period ahead to foster sustainable growth in demand,” the report indicated. For now, RBA officials are still waiting for more inflation data before deciding if another rate cut is warranted.
3. BOE Meeting Minutes
A few weeks after signaling that the pound’s appreciation is hurting inflation, BOE officials played with the forex market’s feelings once more by confirming that they are still thinking about hiking interest rates. Although the MPC meeting minutes showed a unanimous vote to keep rates on hold for now, a couple of hawkish committee members noted that their decision was “finely balanced”, which was interpreted to mean that they’re open to hiking.
In addition, policymakers gave an upbeat assessment of the economic progress in the euro zone, citing that data has been improving and that growth has been accelerating. This could translate to stronger demand for U.K. exports, which could eventually support production and employment. Even though BOE officials admitted that the annual CPI could dip further below zero in the coming months, they projected that price levels could pick up next year and eventually hit their inflation target.
4. SNB Announcement
For the second instance this year, the Swiss National Bank made another unscheduled announcement. But unlike the SNB shocker back in January, their latest decision to reduce exemptions for negative deposit rates didn’t cause too much of a ruckus in the forex charts.
Nonetheless, the franc still sold off heavily against its counterparts when SNB head Thomas Jordan said that they will be exempting fewer institutions from incurring charges for parking cash in the central bank’s vaults. In other words, the SNB will end up charging more accounts for leaving deposits with the central bank in an effort to stimulate more lending activity.
5. RBNZ Assistant Governor McDermott
With forex market watchers so sensitive to interest rate talks these days, even the RBNZ’s second-in-command was able to spur strong moves for the Kiwi! Reserve Bank of New Zealand Assistant Governor John McDermott mentioned in his speech that the inflationary outlook is so weak that monetary policy should remain accommodative for much longer. He even clarified that they are not considering hiking rates anytime soon and that they might actually wind up lowering borrowing costs if needed.
McDermott also pointed out that there are several areas of uncertainty in the economy and that downside risks are stemming from weaker government spending, falling dairy incomes, and a rising local currency. Somebody’s on the jawboning bandwagon, too!\
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