- Oversupplied crude oil falls again
- Pressure on BoC to discuss rate cut this afternoon
- Weak Kiwi inflation hints at OCR change through 2016
Oil prices sunk to a new 12 year low overnight falling just below $28 a barrel. With Iranian supply coming online and Saudi Arabia refusing to cut supply allayed, Chinese demand is slowing due to a weakening economy as it looks likely that the price of oil will remain weak for the foreseeable future. Analysts are predicting an oversupply of 1.5 million barrels per day and this will help keep inflation benign around the world forcing central banks to remain accommodative for longer than anyone anticipated.
Sterling was on the back foot again yesterday as Mark Carney continued the Bank of England's dovish rhetoric. He said that there was no justification for an imminent rate hike despite previously stating that rate hikes would come into sharper focus at the turn of the year. He cited the slowdown in China and the weaker oil price as threats to price stability and confirmed that interest rates would not be raised from current levels in the near future. Although many would question the credibility of the BoE after what seems like conflicting messages, all he is really doing is reacting to events as they occur. It would be foolish to raise rates in the current environment and the Pound looks set to test lower levels as traders adjust to the new reality.
The main event this afternoon is likely to be the interest rate decision from the Bank of Canada. The decision on rates is likely to be on a knife edge as the BoC grapple with much lower oil and an oversold Canadian Dollar. The Canadian economy could well do with the boost that lower fates would bring but it is by no means a done deal. Expect significant volatility around the announcement. Speak to your Halo Financial Consultant for more information.
Attention will probably turn to the next Central Bank meeting as the European Central bank convenes tomorrow. It is unlikely that they will signal a further change to policy so soon after the last move in December however Mario Draghi's subsequent meeting will be very closely monitored for any clues as to whether the ECB is likely to provide additional stimulus. It's not out of the question as data has disappointed and inflation remains stubbornly low.
FX Research by Ricky Nelson
Daily Currency Analysis with Charlie Horsley