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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Secret_Agent_Man who wrote (5544)	3/26/2008 10:58:21 PM
From: Real Man	Read Replies (1) \| Respond to of 71406

Central Bank Interest Rate Outlook dailyfx.com Bank of Canada On December 4th, the Bank of Canada’s monetary policy group joined the Federal Reserve as the second major central bank to put an official end to a former regime of steady rate hikes by lowering its benchmark lending rate. The 25 basis point cut to a target of 4.25 percent marked the first expansionary shift from the central bank since April of 2004. Looking at the same economic data that the monetary policy board was considering during its meeting, the decision for a cut was standing on a few sturdy fundamental legs. Looking at the health of the economy, the growth has cooled through its most recent reading. According to Statistics Canada’s figures, expansion cooled from a 3.8 percent pace in the second quarter to 2.9 percent. And, while this clip is still stronger than the relatively depressed activity from last year, it still lags most comparable G10 and commodity and export based economies. For the past few years, shipments abroad of manufactured goods, autos and raw materials have been the fuel that has gotten the Canadian economy up and running. However, the export sector is quickly changing from boon to burden. Though steady demand and high prices for commodities remains, most other trade-related groups have suffered the burden of expensive input costs and a Canadian dollar at record highs. Indeed, the physical trade surplus dropped to C$2.6 billion in September, its lowest reading since 1998. The third quarter current account balance (a broader measure of trade flows) was heading in the same direction when it reported a C$1.0 billion surplus – its worst reading in four years – from C$6.4 billion the previous period. Economic data aside, the inflation statistics were what allowed the central bank to actually pursue a cut to accommodate growth. Core consumer inflation in the year through October cooled to a 1.8 percent clip, a 16-month low and below the BoC’s target of 2.0 percent. What’s more, despite (or perhaps because of) the economics surrounding this decision, the quarter point cut caught both analysts and market participants off guard. A Bloomberg consensus showed most economists were not expecting the policy meeting to result in any substantial alteration to the Bank of Canada’s monetary policy statement – much less the first rate cut in years. Only three meetings ago, in July, the Bank of Canada hiked the overnight lending rate and kept its language rather hawkish making note of upside inflation pressures, strong consumer spending and a healthy housing market. Looking to the December statement, the rate bias was clearly upset. The group made note of domestic growth in line with their own forecasts, as well as robust global economic expansion and strong commodity prices. However, in terms of inflation, ‘upside risks’ was a phrase that was quickly being crowded out. Officials remarked that price pressures were below forecasts and they expected them to remain so over the next several months. The central bank attributed this quick deceleration in inflation to a high Canadian dollar that has curbed the countries competitiveness on the global market. What’s more, they suggested difficulties in the global financial markets would likely “persist for a longer time” and that under these circumstances both growth and inflation could cool.