Norges Bank surprised the street this morning announcing another 0.25% interest rate cut, its third since December. The central bank indicated additional rate cuts are possible this year with the oil crash getting blamed for falling growth and reduced investment. It did indicate that the lower currency is helping other export industries.
To no surprise, NOK is trading down sharply on this news. What is a bit of a surprise is that CAD has fallen to a much lesser extent, more in line with WTI oil, tracking its declines over the last few minutes.
Why is a Norway rate cut significant for Canada and CAD? Because the last two times Norges Bank cut rates, the Bank of Canada also cut interest rates at its next meeting opportunity as both central banks try to manage the fallout from the oil price crash.
The stability of CAD today relative to NOK suggests that traders may be thinking that the Bank of Canada could break this pattern and hold the course at its meeting on October 21st. There are several possible reasons for this:
Norway had and still has more room to cut rates than Canada. A year ago, Norway was at 1.50% and has gone down to 0.75% while Canada was at 1.00% and dropped to 0.50%.
Canada’s main export customer, the US, is doing relatively well these days, in contrast, Norway is tied more closely to the struggling EU.
The Bank of Canada’s next meeting is two days after an election and the central bank would likely want to stay out of the fray.
A December interest rate cut in Canada, however, is not out of the question, particularly if the transition toward a more balanced economy remains bumpy. This possibility could weigh on CAD going forward, especially if WTI oil continues to struggle below $50.
Norges Bank was joined in cutting rates by central banks in Taiwan and Ukraine today. Once again, dovish monetary moves have been seen as a negative by stock traders with European and US indices
trading lower this morning on concern weak global economic conditions may drag on corporate earnings.
The Dax has been outpacing its peers on the downside falling 2.1% on reports the emissions scandal that started with Volkswagen could spread to BMW which is down 7.3% so far today.
US durable goods were mixed while jobless claims indicated the job markets remains robust, keeping uncertainty about what the Fed may do next running high. FOMC Chair Yellen is speaking on inflation later today which could attract a lot of attention from traders looking for hints of when the Fed could start raising interest rates.
Recall, things have changed this week. Stocks and USD have been falling on dovish talk/weak economy news and rising on hawkish talk/strong economy news as questions over the world growth outlook persist.
There have been no major corporate announcements in North America this morning.
Significant announcements released overnight include:
Norway interest rate surprise 0.25% cut to 0 75% no change had been expected
Taiwan interest rate surprise 0.125% cut to 1.75% no change had been expected
Ukraine interest rate surprise 5.00% cut to 22.0% from 27.0%
US durable goods orders (2.0%) vs street (2.3%)
US durables ex transport 0.0% vs street 0.1%
US jobless claims 267K vs street 272K
Germany IFO business climate 108.5 vs street 107.9
Germany IFO crnt assessment 114.0 vs street 114.7
Germany IFO expectations 103.3 vs street 101.4
Italy retail sales 1.7% vs street 0.8%
Sweden consumer confidence 98.7 vs street 99.0
NZ trade balance ($1,035M) vs street ($850M)
Japan flash manufacturing PMI 50.9 vs street 51.2
Upcoming significant announcements include:
10:00 am BST US new home sales street 515K
10:30 am BST US natural gas street 98 BCF
11:00 am BST US Kansas city Fed street (6) vs previous (9)
5:00 pm EDT US FOMC Chair Yellen speaking
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