Central Banks Send Global Tremors
Anthony Wu | Jan 21, 2015 06:33PM ET
More surprising decisions from Central Banks awaited the markets yesterday. The FX market shook with fluctuations. Starting in the Asian session, the Bank of Japan maintained its current easing levels – even though the committee thinks the lowered oil prices will subdue the inflation level. The yen rebounded strongly as the decision disappointed those who expected Japan to increase the betting on easing again. The outlook for the USDJPY turns to bearish and the short-term target will be the 115 support.
The Bank of England also took the market by surprise. The hawkish members abandoned the option of raising the interest rate and all nine members of the committee agreed that the interest rate should remain at current level. Sterling fell by 100 pips after this release. However, sterling did not hit its month low and recovered most of its loss later in the session. The consolidation pattern continues as markets expect the UK will probably delay the timing of the interest rate hike.
The Bank of Canada also joined in on the upset party. Pulling the rug from under the markets, they unexpectedly cut their interest rate by 25 basis points. The measure aims to support the economic activities of non-energy sectors under the background of falling oil prices. The committee believes the rate cut will provide cushioning for falling employment and income levels, although it may increase speculation of the housing market. The USDCAD surged by over 200 pips after the news of the rate cut. The news also suppressed the AUD and NZD as they are facing the same dilemma of a slowing economy and a heated housing market. The decision may encourage the RBA to implement a similar policy later down the track.
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Stock markets were in a sea of green. The Shanghai Composite rebounded 4.74% to 3323. ASX 200 bounced 1.61% to 5394. The Nikkei Stock Average gained 2.07%. In European markets, the UK FTSE was up 1.63%, the German DAX gained 0.41% and the French CAC Index rose 0.87%. The US market closed up slightly. The S&P 500 closed 0.47% higher to 2032. The Dow gained rose 0.22% to 17554, and the NASDAQ Composite Index gained 0.27% to 4667.
On the data front, important events will be happening around midnight AEDST tonight. The ECB Press Conference will begin at 0:30 AEDST and the US weekly unemployment claims will also be released at the same time.
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