Energy Archives - Page 2 of 2

Reserve Bank of New Zealand (RBNZ) “unjustified” and “unsustainable”

Last Wednesday (January 28, 2015), Reserve Bank of New Zealand (RBNZ) left interest rate or Official Cash Rate (OCR) unchanged at 3.5%. In a statement, two key words “unjustified” and “unsustainable” left Kiwi tumbling. In the statement, “While the New Zealand dollar has eased recently, we believe the exchange rate remains unjustified in terms of current economic conditions, particularly export prices, and unsustainable in terms of New Zealand’s long-term economic fundamentals. We expect to see a further significant depreciation.” They said that NZD or Kiwi exchange rate is too high and they expect it to decline further.”We expect to see a further significant depreciation” signals to me that RBNZ is planning to interfere in their currency, Kiwi. (or they just said that to make their currency to decline). Kiwi fell to the lowest March 2011.

In 2014, RBNZ raised Official Cash Rate (OCR) from 2.50% to 3.50%, increase of 1%. They raised OCR by 0.25% in four consecutive months in 2014; March, April, June and July. That was around the time oil plunge began, which is June. From September to today, they did not raise OCR. Since oil declined more than everybody expected, RBNZ stopped raising OCR. RBNZ’s tone on the interest rate shifted to a neutral stance, “In the current circumstances, we expect to keep the OCR on hold for some time. Future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.”

I would be short on kiwi. If you want to go short on kiwi, I would suggest waiting until it rebounds little bit. I’m already short on it and have been since the beginning of January. If you want to know, where and when I went short, the chart below will tell you. These small lines you see are fit for 1H (Hourly) chart. What you see below is daily chart.

Federal Reserve – January, 2015

Last Wednesday (January 28, 2015), the Federal Reserve released its meeting statement for January 2015. They kept interest rates unchanged, for now. They maintained the key word “patient” on interest rate hike. “Patient” says that FOMC is not in a rush to raise the interest rates. Federal Open Market Committee (FOMC) in the statement said “…economic activity has been expanding at a solid pace. Labor market conditions have improved further, with strong job gains and a lower unemployment rate.” They viewed the economy in a good shape overall. Regarding inflation, they said ” Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices.” They are blaming declining oil prices for the decreasing inflation. They also said “Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.” They expect inflation to decline as oil continues to decline in the near term. “Near term” can be about 6 months. They’re also saying that they expect oil prices to increase in “medium term”, which also can lift inflation. “Medium term” can be around 2 years.

In the statement, they are giving us some clues of future rate hike. “…readings on financial and international developments.” can account for rates. If the future financial reports are positive and international situations cools down, they might go for rate hike. Therefore, “…the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” What they said in 3rd paragraph of the last 2 sentences can be very helpful in predicting timing of rate hike, “Based on its current assessment, However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated. If the future financial reports come out very positive and way better than expectations, we can conclude that rate hike is nearing. If, it’s worse than expectations, then we can conclude that rate hike is too far, but reachable.

All 10 FOMC members agreed with the statement (unanimous) since June 2014. If a certain situation slightly changes. Some, but not all might change their views. If a certain situation changes dramatically, all of FOMC members might be unanimous in the future statements.

Financial markets’ reactions to FOMC statement.

USD-JPY reaction to FOMC Jan 2015 — Hourly Chart

I will be watching future financial reports such as ISM Manufacturing PMI and jobs reports, which are coming out next week. Using these types of reports and more, I will try to time the rate hike. As of right now, I believe it’s coming in the summer.

Now, Bank of Canada (BoC) Shocks by rate cut. Who’s next?

On Wednesday (January 21, 2015), Bank of Canada (BOC) announced that it is cutting the overnight rate to 0.75% from 1.00%. Bank rate and deposit rates stay the same, bank rate at 1.00% and deposit rate at 0.5%. Their reason for cutting overnight rate by a quarter?

Oil is the reason. For the past six months, crude oil (WTI) has been declining about 60%. BOC says that drop in oil prices are “negative for growth and underlying inflation…”. Fall in oil prices hurts Canadian economy because they are 3rd largest oil-exporting country. Oil-importing countries, such as China and the United States are benefiting from low oil prices.

Immediately after the announcement, loonie (CAD) fell over 200 pips, pushing USD/CAD to 1.2273 from 1.2063 (210 pips) in first 15 minutes (From 10:00 AM to 10:15 AM). USD/CAD kept hitting new highs since early 2009 (still is, for now). BOC expects oil prices to be around $60 in medium term (next two years). During the opening statement, BOC governor, Stephen S. Poloz said something that gave little more power for loonie to decline.

During the opening statement, Governer Poloz said “The Bank has room to maneuver should its forecast prove to be either too pessimistic or too optimistic.” If conditions gets worse than what BOC expects, they might cut the overnight rate further. The statement caused USD/CAD to jump little higher. At the end, one thing that was said surprised me. Governor said “…we discussed the risk that by moving today we would surprise financial markets. We generally prefer that markets not be surprised by what we do…” Two opposite things are being said here. But, there were some rumors to rate cut days before. Since oil price decline increases the downside to Canadian economy. Rate cuts are” intended to provide insurance against these risks.”

If oil continues to decline until March, BOC might cut the overnight rate. I believe that because they warned us of further cuts from both on a press release and press conference. As of right now, I believe crude oil will fall to an area of $40.50. Then, stay there for several weeks. I’m saying this because technical analysis. I’m not an expert on crude oil, yet.

Who’s next to cut the rates? I believe it’s Reserve Bank of Australia (RBA). Since August 2013, Cash Rate Target has been staying at 2.50%. In the beginning, most of their monetary policy decisions statements included sentences “The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy.” Now, they say “The exchange rate has traded at lower levels recently, in large part reflecting the strengthening US dollar. But the Australian dollar remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices in recent months. A lower exchange rate is likely to be needed to achieve balanced growth in the economy”. They were saying that to weaken Aussie. They know how much their “words” has the power to cause large changes in the exchange rate. In the long-term, AUD/USD was (still is) in a downtrend. They might cut rates in February (February 2, 2015) or March (March 2, 2015), to further weaken Aussie. Further information about RBA monetary policy can be found here. (Note: times/dates are in EST).