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Reserve Bank of New Zealand Governor Brehman: If we see a shift in pricing behavior, a much stronger economic recovery, and the ability to withstand higher interest rates, we will act and tighten policy sooner rather than later.Reserve Bank of New Zealand Governor Brehman: As the economy recovers, there remains uncertainty about how businesses will adjust their pricing behavior.Reserve Bank of New Zealand Governor Brehman: I am not comfortable at all with inflation at 3.1%.Reserve Bank of New Zealand Governor Brehman: If the inflation outlook changes, the committee will adjust its policy stance to ensure that inflation returns to the target.February 19th - Federal Reserve officials reiterated their concerns about inflation, with several policymakers suggesting that the central bank may need to raise interest rates if inflation persists above target. The minutes of the Feds January meeting revealed that "several participants indicated they would have supported a two-way description of the Committees future interest rate decisions, reflecting that raising the target range for the federal funds rate might be appropriate if inflation remains above target." The minutes also showed that "the vast majority of participants judged that downside risks to employment had eased in recent months, but risks to persistent inflation remained." According to the latest minutes, one group of policymakers believed that further rate cuts were unlikely, at least in the near term. The minutes stated: "Several participants cautioned that further easing of policy against the backdrop of high inflation readings could be misinterpreted as a weakening of policymakers commitment to the 2% inflation target."

Prior to the Fed's decision, the USD/CAD bulls retain control

Daniel Rogers

Nov 02, 2022 18:08

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After Bank of Canada (BoC) Governor Tiff Macklem announced that he believes the policy rate would need to increase further, the Canadian dollar remained relatively stable. The USD/CAD exchange rate is 1.3628 at the time of writing, after moving between 1.3622 and 1.3635.

 

Governor Macklem noted that there has not yet been a general decline in pricing pressures and that there are no simple measures for restoring price stability. Since last week's interest rate announcement, the Bank of Canada has already reduced the pace of its tightening.

 

In recent statistics, industry-level Gross Domestic Product surprised to the upside with a 0.1% MoM gain for August, slightly over market expectations but, as analysts at TD Securities highlighted, "hardly scorching and Q3 GDP is still tracking in line with Bank of Canada predictions (after revisions). While this data was promising, it will not be enough to convince the Bank that the outlook has deteriorated, and we continue to anticipate a 25-basis-point cut in December.

 

As it is believed that the Federal Reserve would declare a slower rate of tightening at its upcoming meeting, the US dollar fell against key currencies on Tuesday. The Federal Reserve is widely predicted to increase its overnight lending rate by 75 basis points (bps) to a range of 3.75 to 4.00 percent, the fourth straight increase. In December, however, the fed funds futures market has priced in a 57% chance of a 50-bps increase in response to comments from Fed members indicating a possible slowing of the tightening pace. This is less than the roughly 70% chance that existed last Friday. In response to statements and interviews by Fed members signaling that the central bank may implement fewer rate hikes after Wednesday's meeting, the US dollar index has recently began to register lower daily highs.

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