Central Bank Watch: BOC, RBA, & RBNZ Interest Rate Expectations Feb. 4 Update

Now into the second month of the year, central bank activity is heating up again. Earlier on Thursday, the Bank of England’s “Super Thursday” produced a strong reaction in the British Pound, thanks in part to a key consideration: they would not move to negative interest rates, even if they suggested banks take preparations for such an event.

The conversation around negative interest rates is not new to a slew of other central banks either: the Bank of Canada, Reserve Bank of Australia, and Reserve Bank of New Zealand. The last of the trio has most openly flirted with the idea, but all three central banks are now positioned to keep rates near, but not below, zero. Now, none of the central banks tied to the commodity currencies (AUD, CAD, NZD) have seen either rate cut or hike odds move meaningfully.


While the Bank of Canada stood pat at its first meeting of the year, Governor Tiff Macklem did not mince words over the problem that an appreciating Loonie is posing for the Canadian economy. “In this situation where we’ve seen this broad-based US dollar deprecation that doesn’t reflect some positive development in Canada that the exchange rate is absorbing…the exchange rate is starting to create a material headwind for the Canadian economy.” Furthermore, it was noted that the recent Canadian Dollar appreciation “is weighing on our exports and it’s also making it harder for our domestic producers to compete against firms in other countries.”

Unfortunately for the BOC, there’s not much that can be done to prevent the Canadian Dollar appreciation vis-à-vis USD/CAD, at least, as Governor Macklem concedes, when “in a situation where our Canada-U.S. exchange rate is moving largely because of made-in-U.S. developments as opposed to made-in-Canada developments.”


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