BoE Waters Down Rate Hike Expectations

Daily Analysis - 06/11/2015

Bank of England Expects Inflation to Remain Below 1.00% in 2016 Pushing Out Liftoff Timeline

Coming out with a very dovish tone, the Bank of England lowered its inflation forecasts and reiterated plans to keep its asset purchase program unchanged until inflation hits the 2.00% target rate. By sending a very dovish message to markets, the BoE now joins most other central banks which have either come out dovish, making the US Federal Reserve the only Central Bank that is expected to hike rates.

Bank of England Leaves Rates Unchanged

The Bank of England, in its monetary policy announcement yesterday left interest rates unchanged at 0.50% with no change to the MPC's rate count with one dissenter in favor of a rate hike while 8 members voted to keep rates steady. The Bank of England released its quarterly inflation expectations report where it significantly lowered the near-term outlook. The Central Bank said that it expects CPI to remain below 1.00% into the second half of 2016, pushing back the rate hike expectations into the first quarter of 2017. On the unemployment front, the BoE expects to see the UK's unemployment rate at 5.00% in two years. On the positive side, the BoE revised its quarterly GDP expectations and said that third quarter GDP could be revised to 0.60% after preliminary estimates put the number at 0.50%. GBPUSD posted sharp declines, closing yesterday at 1.5207.

RBA Monetary Policy Statement Released

The Reserve Bank of Australia released its quarterly statement on monetary policy earlier today. Overall, the Central Bank did not make any major changes to the forecasts from the August report and reiterated that the Australian economy could grow at a 3.00% annualized pace in 2016 while making minor downward revisions to GDP forecasts this year to 2.25% from 2.50% previously. On inflation, the RBA lowered its forecasts from 2.50% to 2.00% and expects inflation to remain at 2.00% until June 2016. There was some positive news for the labour markets as the RBA expects to see further strengthening in employment growth. The Bank's statement hinted that the RBA is likely to put rate cuts on hold into the end of this year and the first quarter of 2016. AUDUSD has traded sideways since early Asian trading after closing with a doji candlestick pattern yesterday at 0.7141.

US Nonfarm Payrolls

The monthly nonfarm payroll report is due out today with the markets looking at a conservative estimate of 180,000 new jobs being added to the US economy in the month of October. The estimates are of course higher than the previous month's 142,000 print. On the unemployment rate, the median consensus estimates is for the rate to stay on hold at 5.10%. With the Federal Reserve reiterating that December's FOMC meeting will be a deciding event, the onus is on the unemployment numbers to continue supporting the view that the US economy is nearing full employment of 5.00%, which leaves only the consumer inflation as the final piece to the puzzle which has been consistenly below the Fed’s target of 2.00%. EURUSD continues to trade near monthly lows albeit closing

Canada Monthly Jobs Report

The monthly labour market data from Canada is due for release at the same time as the US monthly payrolls report. Median estimates is for Canada's unemployment rate to have remained unchanged at 7.10% while the monthly employment change is expected to show 10,000 new jobs being added to the Canadian economy, a modestly lower figure compared to the 12,100 increase a month ago. However, the gains in the prior report was due to a large number of workers leaving full-time employment while part-time employment fared better, indicating a likely drag on the unemployment rate over the medium-term. Released simultaneously, will be Canada's building permits data as well, which is estimated to rise 0.20% for the month. Combined, the data dump is likely to put the Canadian dollar under pressure into the announcement with USDCAD very likely to turn volatile on the news release.