The Canadian dollar inched higher overnight but remained inside the recent range. Financial markets are waiting for today’s 9:10 am ET speech by Fed Chair Jerome Powell. He will be announcing the findings from the Monetary Policy Framework Review, in a speech titled "Navigating the Decade Ahead: Implications for Monetary Policy."
Markets expect that a new inflation paradigm will be centrepiece of the speech. Powell is expected to announce that the Fed will no longer have a 2.0% inflation target. It will be replaced by an "Average Inflation Targeting" measure. If so, the move is considered dramatic, at least in central bank circles.
It would supposedly give the Fed more leeway to manage its mandate of "maximum employment, stable prices, and moderate long term interest rates." Some analysts believe it would allow the Fed to tolerate a higher inflation rate while it attempts to support economic growth.
The Fed isn’t the only central bank worried about stubbornly low inflation. It is a common them around the world. The Bank of Canada (BoC) appears to be setting the stage to follow whatever new strategy the Fed adopts.
The BoC is conducting a survey titled "Let's Talk Inflation" to determine how the average person views inflation. Deputy Governor Lawrence Schembri seems to know the results already. He said in a speech on Tuesday that many consumers believe the Consumer Price Index (CPI) consumption basket is not representative of them. He also said he knows they are wrong because that is what the BoC models tell him.
Markets were quiet overnight.
Asia equity indexes closed on a mixed note, while European equity indexes are trading lower, as are S&P futures. West Texas Intermediate (WTI) are consolidating gains made on Tuesday, as Hurricane Laura made landfall in Texas and forced refineries to close.
The U.S. dollar has been sliding in anticipation of very dovish remarks by Powell. However, upside momentum has slowed, suggesting the greenback could rally, even if Powell delivers as expected. If so, the gains may not be sustained.
USD/CAD traded in a $1.3138-$1.3165 range, as it mirrored broad US dollar moves. Today’s U.S. Jobless Claims may spark mild risk aversion if claims are above last week’s 1.104 million increase.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
