Notes From Underground: Central Bank Policy Peeks

On Monday night, the Reserve Bank of Australia issued its policy decision and as expected, there was no change in overnight rates at 0.25%. More importantly, the RBA is targeting three-year Aussie government bonds at 0.25%, keeping the yield curve flat or inverted out to that point.

Governor Lowe said, “The Bank is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional and achieve the yield target for 3-year Aussie Government Securities.”

It seems the tone of the statement was DOVISH but only because there was not one word about the Aussie dollar, which means the RBA was not concerned about the recent move. (The rising sense of commodity prices is powering the AUSSIE higher, for the moment.) The RBA concluded the statement with the following: “The accommodative approach will be maintained as long as it is required. The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 per cent target band.”

On Wednesday, the Bank of Canada will release its policy statement and rates are expected to be held  at 0.25%. Any change from the BOC will be in the amount of asset purchases. The Canadian dollar has experienced recent strength as the OIL prices have climbed and other commodity prices have appreciated.

The BOC has the comfort to remain steady with no change in policy. If the Canadian dollar corrects off of a no change and dovish statement look for support levels for the loonie. Be patient and let the market reveal its intentions of whether or not a bear market in the U.S. DOLLAR can gain traction. The BOC’s language may be dovish but remember every central bank is dovish, except the ECB.

On Thursday morning we hear from the ECB and Christine Lagarde. I will venture that the ECB will not change rates and with the recent Wolfgang Schaueble pivot President Lagarde may not want to upset the recent efforts to find a way toward fiscal harmonization. The support of the 500 billion euro grant program is a step forward in Lagarde’s mind and it may not be worthwhile to upset the FRUGAL FOUR. Bonds yields on sovereign debt issuance are compressing as the market begins to think some type of EURO support with a common bond  is seen as a possible reality.

President Lagarde will be neither hawkish or dovish but an OWL. She will proceed with WISDOM, which will require doing nothing and enjoying her recent success with the powerful Schaeuble. Patience is required to see what takes place at the press conference.

All central banks are following the lead of the FED, but just to what degree? I do give a HOOT what the OWL reveals at the press conference.

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11 Responses to “Notes From Underground: Central Bank Policy Peeks”

  1. yraharris Says:

    The comment on the Aussie is confusing—I clarify by stating that the rise of the Aussie resulted because of NO CONCERN over the recent rally in the Aussie–especially as the AUD/NZD has gained to over 1.08—-in every statement for the last few years the RBA made sure to include the value of the Aussie in the Statement—not a word this time—–YRA

  2. Richard H Papp Says:

    In addition;
    Over the last year or so Governor Lowe, at times, has been Chief Cheerleader for a lower Aussie $. I was further shocked at fixing 3 year paper @ 0.25%
    Worldwide Financial Repression Continues!

  3. The Bigman Says:

    Hey How do I get a job as one of those economists? Do you need to go school? Predicted 8 million job loss and actual was 2 million job gain!!! Only missed by 10 million or by what we call a country mile. Sign me up.

  4. The Bigman Says:

    Sorry didn’t see it Your brother was my attending when I took infectious disease elective. He gave me the oral exam at the end of the rotation. Still remember that I missed the question about the school teacher with a sore throat – she had gonococcal(GC) pharyngitis guess I was still too naive at that time.

    • yraharris Says:

      Did you know this when you started reading here–or mere coincidence?No wonder your insights have been so good you were trained at Rush

      • TraderB Says:

        In a world where everything is overpriced, Platinum & Silver look awfully attractive on a relative basis.

      • The Bigman Says:

        Yra Certainly training at Rush didn’t hurt There is a great combination of intelligence, midwest moxie and healthy skepticism practiced there. No I didn’t know that when I started reading. I started reading after seeing your interviews with Rick Santelli. Once I realized you were from Chicago it may have crossed my mind but I probably thought there were a lot of Harrises in Chicago. I was in the same class as your younger brother.

  5. The Bigman Says:

    Oops I meant other brother- a typo

    • yraharris Says:

      Bigman–my OLDER other brother and roommate is certainly another I am very proud every day of my life to call BRO and mean it—thanks for all your feedback

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