RBNZ Cuts, BoC Holds, ECB Next

Central banks in New Zealand and Canada painted completely different pictures of the global economy in their announcements Wednesday. The surprisingly placid view from the BOC made CAD the top performer while the kiwi tumbled on an unexpected RBNZ cut. It all sets the stage for the ECB in the day ahead.

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USD/CAD fell more than 150 pips to a fresh 2016 low after the Bank of Canada held rates at 0.50%. No move was expected but many expected dovish commentary or jawboning from the BoC. Instead, the statement said the global economy was progressing as anticipated and forecasts were on track. Oil was a big part of the CAD rally as it climbed 5%.

The RBNZ had a different view on the global economy with Wheeler saying it has disappointed and that he expects IMF downgrades in April. He also said Chinese building and manufacturing are “very much under stress.” Domestically, he jawboned the kiwi and said more cuts could come if data shows falling inflation expectations or faltering growth. NZD/USD fell 125 immediately on the decision and later continued another 25 pips lower.

The focus now shifts to the ECB decision Thursday. Draghi and other core members have dangled the likelihood of action and most economists expect a 10 bps cut in the deposit rate to -0.40% from -0.3%. A significant minority see a 20 bps cut.

The larger intrigue will be the combination of asset purchases, possibly raising monthly QE to 70-75 billion euros from 60B or adding other tools into the mix. What's fresh in the mind of market participants is a replay of the BoJ decision when they surprised with negative rates and crushed the yen only to see it reverse in the days ahead.

The euro rallied Wednesday, climbing 75 pips, perhaps as the euro bears get out of the way of a complicated and touchy central bank decision.