Speaking at a meeting with former Fed officials at a conference in Atlanta last Friday, Federal Reserve Chairman Jerome Powell said, that the Fed does not have a predetermined plan to raise the key interest rate, and that the central bank will be more flexible in its monetary policy this year.
This is the new position of the head of the Fed. Earlier in December, Powell argued that “the process of reducing the balance goes smoothly and reaches its goal”, so they do not intend to change anything at the central bank.
After Powell’s speech on Friday, the dollar fell sharply, and stock indices closed the day with a noticeable gain.
Futures on federal funds, which investors use to bet on Fed policy, last Wednesday indicated a 91% chance that interest rates would be reduced this year or remain at the same level. Investors are increasingly inclined to think that in 2019 the Fed will not raise interest rates. The more cautious position of the Fed in this matter, voiced by Powell on Friday, confirms investors’ opinion that the Fed is likely to refrain from raising rates in 2019 at all.
This is a fundamental change compared to the beginning of November, when a 90% probability of a rate hike in 2019 was predicted.
This means that stock markets have already reached the local bottom in late December. And, if the macro data from the United States comes with positive indicators, and there is a positive trend in resolving the trade conflict between the United States and China, stock indexes will quickly regain their positions, and the threat of breaking the almost 10-year bull trend of the US stock market will change to a return of positive dynamics.
The fate of the dollar will also depend entirely on the actions of the Fed and other global central banks. If the Fed does not raise rates, and other central banks begin to curtail its soft monetary policy, the dollar, which grew by about 4.8% last year, will be vulnerable to other competing currencies this year.
15:00 CAD Bank of Canada Interest Rate Decision. Accompanying statement of the Bank of Canada. Report of the Bank of Canada Monetary Policy Committee
The Bank of Canada will decide on the interest rate. In December, the Bank of Canada did not change its monetary policy. In a companion statement, the central bank stated that the pace of further rate hikes will depend on a number of factors, including the impact of this process on consumption and the housing market, as well as on the situation in international trade policy. “Shock resilience in relation to oil prices, the situation with companies’ investments and the economic assessment given by the Bank of Canada will also play an important role in making decisions about the future course of monetary policy”, the Bank of Canada said.
Probably, at a meeting on Wednesday, the Bank of Canada will once again keep the interest rate at 1.75%. Probably, on the eve of this meeting of the bank, the Canadian dollar will remain under pressure. Economists forecast a further slowdown in the Canadian economy amid falling oil prices and deferred effects of earlier increases in interest rates. The consequences of a tightening policy by the Bank of Canada, as well as a slowdown in wages and a weak housing market have a negative impact on the activity of the country’s households.
In their accompanying statement and report on changes in monetary policy, representatives of the Bank of Canada will explain the position of the bank and assess the current economic situation in the country. The hard tone of the accompanying statement of the Bank of Canada regarding rising inflation and the prospects for further monetary tightening will cause a strengthening of the Canadian dollar. If the Bank of Canada signals to extend the period for maintaining a soft monetary policy, the Canadian currency will decline.
The Banking Policy Committee of the Bank of Canada will make a regular quarterly report on current monetary policy issues, containing information on changes in monetary policy. The hard tone of the report may cause CAD reinforcement.
15:15 CAD Press Conference of the Bank of Canada
During the press conference, the head of the Bank of Canada Stephen Poloz will explain the position of the bank and assess the current economic situation in the country. If the tone of the speech of Stephen Poloz is tough with respect to the monetary policy of the Bank of Canada, then the Canadian dollar will strengthen in the foreign exchange market. If Stephen Poloz favors maintaining a soft monetary policy, the Canadian currency will decline. In any case, during the performance of Stephen Poloz, the highest volatility in the Canadian dollar trades is expected.
15:30 GBP Speech by Bank of England CEO Mark Carney
Participants in financial markets are waiting for him to clarify the situation regarding the future policy of the central bank of Great Britain. Volatility during his speech usually increases dramatically in the pound trade and in the FTSE index of the London Stock Exchange, if Mark Carney gives any hints of tightening or easing of monetary policy.
If he does not touch the monetary policy issues of the Bank of England, then the reaction to his speech will be weak.
Also investors will be interested in the current position of the Bank of England in relation to Brexit. In one of his recent speeches, Mark Carney said that the management of the Bank of England does not doubt the ability of British banks to resist if the Brexit negotiations end in nothing. In his opinion, the withdrawal of Great Britain from the EU without an agreement would be a “real economic shock”. In this situation, raising or lowering interest rates by the Bank of England is not so important for the economy.
Probably, during his speech, Mark Carney will again talk about the prospects of the UK economy and the actions of the Bank of England in the conditions before the official date for the Brexit March 29, 2019 and after.
15:30 USD Weekly report of the Energy Information Administration of the United States Department of Energy on petroleum and petroleum products in US storage facilities
The publication of data is usually accompanied by an increase in the volatility of oil prices, which are expressed in US dollars. Reducing stocks, as a rule, has a positive effect on oil prices. The previous value is +0.007 million barrels of oil and petroleum products. If the reserves of oil and petroleum products in the United States rose again last week, then this will adversely affect oil prices.
In recent days, there has been an increase in oil prices after a sharp drop in the last 3 months. In September, the price of Brent crude oil was $ 86.60 per barrel, which is a multi-year high.
The fall in global stock indices and signs of a slowdown in global economic growth also adversely affect oil prices. There is no sign of a change in the bearish trend in oil prices, despite OPEC’s determination to resume oil production again.
19:00 USD Minutes from the last meeting of the Fed open market operations committee
Publication of the protocol is extremely important to determine the current Fed policy and the prospects for raising interest rates in the United States. The probability of the Fed raising interest rates in 2019 is currently less than 10%, according to futures contracts for federal funds.
Volatility of trading in financial markets at the time of publication of the protocol usually increases, because the text of the protocol often contains either changes or clarification of details regarding the outcome of the December meeting of the FOMC Fed.
The soft tone of the protocol will have a positive effect on stock indices and will adversely affect the US dollar. The harsh rhetoric of Fed officials regarding monetary policy prospects will push the dollar to further growth.
Source : https://www.fxstreet.com/analysis/cad-bank-of-canada-interest-rate-decision-in-the-spotlight-for-tomorrow-201901081946