Central Bank Watch Overview:
- Budding optimism over a global growth rebound post-pandemic is helping fuel demand for global growth-linked assets and currencies, like the Australian, Canadian, and New Zealand Dollars.
- Each of the commodity currency central banks – the Bank of Canada, Reserve Bank of Australia, and Reserve Bank of New Zealand – have seen rate cut expectations evaporate.
- Retail trader positioning suggests that the commodity currencies are on mostly bullish footing (bullish AUD, NZD; neutral CAD).
Central Bank Calendar Heats Up
The third week of December is upon financial markets, in what will be the last ‘full’ trading week of the year. With Christmas Day the following Friday and New Year’s Day the Friday after that, the economic calendar is about to thin out significantly. But before that happens, there are several central bank meetings due scheduled for the week ahead.
– Wednesday, December 16: USD Federal Reserve Rate Decision, Summary of Economic Projections, & Press Conference
– Thursday, December 17: GBP Bank of England Rate Decision
– Thursday, December 17: CHF Swiss National Bank Rate Decision
– Friday, December 18: JPY Bank of Japan Rate Decision
For more information on central banks, please visit the DailyFX Central Bank Release Calendar.
In this edition of Central Bank Watch, we’ll cover the trio of central banks that won’t be in the news the coming week, the Bank of Canada, Reserve Bank of Australia, and Reserve Bank of New Zealand, all of whom are dealing with rapidly appreciating currencies versus the US Dollar.
Bank of Canada Looks to 2023
For the past several weeks, BOC Governor Tiff Macklem has been crystal clear regarding the BOC’s crisis policies, saying that “if you are a household considering making a major purchase, if you’re a business considering investing, you can be confident that interest rates will be low for a long time.” At the December BOC rate decision, BOC Governor Macklem suggested that rates could remain at their ultra-low level “probably” until 2023.
Bank of Canada Interest Rate Expectations (DECEMBER 11, 2020) (Table 1)
As such, interest rate cut or hike expectations are muted thanks to firm forward guidance offered by BOC Governor Macklem. Through October 2021, there is only a 2% chance of a 25-bps rate hike by the BOC. Although some months between present day and October 2021 have higher probabilities suggesting increased odds of a rate cut, it should be noted that this is likely a pricing quirk in the Canadian overnight index swaps curve rather than a suggestion that another rate cut is likely to materialize.
Recommended by Christopher Vecchio, CFA
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Read More: BOC, RBA, & RBNZ Interest Rate Expectations Update