13 Jan 2015
Oil drop continues, risks building for a communication change by FOMC - BTMU
FXStreet (Barcelona) - According to Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ, a further fall in oil could impact core inflation, and Fed’s communications may start to take some shine out of USD strength.
Key Quotes
"A near 5% drop in crude oil yesterday has been followed by further falls today as market participants continue to debate the fallout for the global economy going forward. What is notable today is that foreign exchange rates are broadly stable (except RUB) possibly indicating that the dollar rally might be entering overdone territory."
"We would certainly point to USD/CAD as having further upside potential than say USD/NOK if oil continues to fall.”
“CAD/NOK is at levels not seen since 1985 and this rally looks to be tiring and may be about to go into a period of reversal."
"Additionally, as crude oil prices fall further from here, the greater the risk becomes of a communication change from the FOMC on the outlook for monetary policy. We would place the Fed and the BOE as key central banks that appear for now to be looking beyond the energy price drop but the further energy price declines push inflation expectations lower the greater the prospect of a communication change on policy."
"San Fran Fed President Williams and Atlanta Fed President Lockhart both mentioned a mid-year lift-off as reasonable but Williams stated it was a close call and Lockhart urged caution. With Williams and Lockhart more on the dovish side, perhaps Richmond Fed President Lacker’s comments are what we should focus on."
"But even Lacker, who thinks labour market slack has “nearly” been eliminated only stated that a rate increase this year was “likely”.”
“If oil continues to fall, the impact on core inflation and hence Fed communications may well start to take some of the shine off the dollar."
Key Quotes
"A near 5% drop in crude oil yesterday has been followed by further falls today as market participants continue to debate the fallout for the global economy going forward. What is notable today is that foreign exchange rates are broadly stable (except RUB) possibly indicating that the dollar rally might be entering overdone territory."
"We would certainly point to USD/CAD as having further upside potential than say USD/NOK if oil continues to fall.”
“CAD/NOK is at levels not seen since 1985 and this rally looks to be tiring and may be about to go into a period of reversal."
"Additionally, as crude oil prices fall further from here, the greater the risk becomes of a communication change from the FOMC on the outlook for monetary policy. We would place the Fed and the BOE as key central banks that appear for now to be looking beyond the energy price drop but the further energy price declines push inflation expectations lower the greater the prospect of a communication change on policy."
"San Fran Fed President Williams and Atlanta Fed President Lockhart both mentioned a mid-year lift-off as reasonable but Williams stated it was a close call and Lockhart urged caution. With Williams and Lockhart more on the dovish side, perhaps Richmond Fed President Lacker’s comments are what we should focus on."
"But even Lacker, who thinks labour market slack has “nearly” been eliminated only stated that a rate increase this year was “likely”.”
“If oil continues to fall, the impact on core inflation and hence Fed communications may well start to take some of the shine off the dollar."