FX Daily Update
The National Bank of Canada | Sep 13, 2016 09:05AM ET
Optimism was back on markets yesterday further to comments by U.S. Federal Reserve (“Fed”) officials Lael Brainard and Neel Kashkari hinting that there was no rush to raise the key rate. The next FOMC meeting will be held on September 21 and the futures market is pricing the probability of a rate hike at 22%.
Inflation in the United States remains below the 2% target and the real return bond market (TIPS) is showing that investors do not anticipate a sharp upswing in price levels in the years to come. In fact, the implicit inflation rate in the United States, which represents the gap between the nominal interest rate of a government bond and the corresponding real return bond yield currently stands at 1.51% for a 10-year term. Meanwhile, the U.S. real return yield for a 10-year term is a paltry 0.15%! In this context, it is easy to understand investors’ penchant for stock markets.
The Canadian dollar, crude oil and stocks are giving back a portion of their gains from yesterday. No significant economic indicators are expected today.
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