FED is no longer “patient” but lower rates for longer – Canadian Dollar Higher
The FOMC has removed the word “patient” from its text but indicates there is no certainty on an interest rate timetable. Canadian dollar bulls are happy.
The FOMC continues to be focused on data dependency and not date dependency. The market was focused on the word patient as an indicator of a rate hike a few months from when it was removed – this seems to be an error. The FED is not date dependent at all, it’s all about the data, and nothing has been pre-determined with the FED.
The key focus remains unemployment and inflation data. The FED wants to be extremely confident about the economy and inflation before it starts to increase interest rates. Basically, the FED wants more breathing room to make a decision, and continues to kick the can forward, but this time, the removal of the word patient inches the FED ever so closer towards priming the market for an interest rate hike. At this point a September rate hike is possible, if headwinds are avoided, and perhaps an early 2016 rate hike if growth moderates in the US with no threat of inflation. Moderating growth in the US could rock the boat and really make the FED nervous about hiking interest rates.
The theme of lower rates for longer continues with the FED. This has been the story for several years now and it continues. The FED is moving in slow motion – but its direction is clear.
Canadian Dollar Impact
Canadian dollar bulls are jumping with joy.
The unexpected has happened, the FED removed the word patient but continued to indicate it needs time before it will increase interest rates. The FED statement today is positive for the Canadian dollar as it gives the Canadian economy more time to rebound, the Bank of Canada more time to wait out this rough patch, and oil prices more time to stabilize. With the FED potentially looking at a very late rate hike this year, this buys the Canadian economy time to get through falling oil prices and adjust to export growth, which naturally takes time.
Look for the Canadian dollar to continue to be range bound between 1.23 and 1.28 USD/CAD with the drivers being oil prices in Canada and economic divergence in the US. The central banks still hold all the cards, but it’s clear the FED still wants to be patient.
By Admin | March 18, 2015 | Daily Update |
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