BoC And Fed Cut Rates By 50bps, Who’s Next?

With both Fed and Bank of Canada cutting rates by 50bps, the rest of the major central banks may start to follow. Long XAU/USD?

Federal Reserve Chairman, Jerome Powell, announced that they will be cutting rates by 50bps in the next Fed meeting to counter the global slowdown and impact from the coronavirus outbreak.

Dollar fell almost immediately as expected due to the rate differential between the Fed and the rest of the central banks.

What perplexed the market was that the stock markets did not hold. A rate cut, in theory, should boost the stock markets due to cheaper loans, but the Dow initially rose in relief before falling to more than -800 points at the end of the NY session.

On the other hand, Bank of Canada cut rates by 50bps as well last night, 25bps more than forecasted.

The central bank said on Wednesday that it cut its target for the overnight rate because COVID-19, as the virus is known, was "a material negative shock" to Canada's already softening economic outlook.

The cut in the bank's key rate is the first since the summer of 2015 and brings the rate to a level not seen since early 2018.

Having said that, we believe that the rest of the major central banks will follow suit as the cut by the Bank of Canada has shown.

It may be hard to pinpoint which currency will outperform which, but we can be sure that Gold (XAU/USD) will shine in times of low-interest rate.

We expect the price to move higher towards 1664 this week.

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