The US dollar was hit hard following the Fed’s decision not to raise rates and to maintain a dovish tone via its forecasts and lack of confidence in general. No rush to raise rates meant a rush to sell the dollar, even if markets were leaning towards a “no hike” decision.
But wait, the main reason for holding the rates and lacking confidence was directed at China and other emerging markets, and this is relevant also for the greenback’s peers. Here are 5 central banks that could follow with dovish moves.
- EUR: The euro jumped very nicely against the dollar, but some of it was safe haven flows on worries. And the worries are justified. ECB President Mario Draghi announced a small dosage of more easing in the latest event and left the door open for more. Basically, he waited for the Fed. Now the ball returns to his court. He may enhance QE by raising the monthly cap from 60 billion euros per month and extend the program beyond September 2016. If it won’t happen in the upcoming meeting in October, we could certainly get hints about action in December.
- JPY: Also the yen enjoyed safe haven flows and also the BOJ is considering action. The central bank meets quite frequently in Japan, but reports focus on the October 30th meeting. The Japanese economy is not moving on all engines and reaching the inflation goal seems quite elusive.
- GBP: The Bank of England was relatively upbeat and wages are providing an indication for a move. Yet Governor Mark Carney may be only the second in command. No, not by the UK government, but by Yellen. It is hard to see the BOE raising the rates before the Fed and as the ECB eases. A stronger sterling against the euro is certainly not desired.
- CAD: The Bank of Canada already cut rates twice this year and the economy is in recession. A gloomy outlook means low oil prices will persist. Also the other important factor in the Canadian economy is not looking too good: trade with the US. If the Fed’s lack of confidence is correct, than it is a warning sign also for Canada.
- AUD: The RBA cut rates as well and the Aussie was already hit hard by the Chinese crisis. On the dovish Fed tone, the A$ came out as one of the strongest currencies, not to the liking of Governor Stevens and his team. We may hear some jawboning from the RBA on the exchange rate and also on potentially more cuts.
- NZD: The RBNZ is set to cut rates in October, with recent hints from the RBNZ and weak GDP supporting the case. Where will rates hit a bottom? The dovishness from the Fed means that 2% may not be the ultimate floor.
What do you think?
More: Fed inaction adds nothing but turbulence to the market