What are the chances of a rate hike in April?

Mar 28, 1:52 pm
Federal Reserve

Image via Leo Newball, Jr.California Federal Reserve Bank’ / Flickr

The USD/CAD pair moved slightly on Friday, the European session setting the rate in the 1.3230 area. The main reason for this small fluctuation is that the Canadian markets were closed for Good Friday, being no Canadian news releases. From the US side, the final GDP (Gross Domestic Product) figures for Q4 have been released, with markets expecting a +1.0% restatement and actual figures posting a 1.4% value.

As Canada is a major oil producer, the Canadian dollar is highly impacted by the crude oil price fluctuation. The downfall in oil price since the mid-2015 has taken a toll on the CAD. The correlation could have been seen easily on Wednesday when oil prices turned to the downside due to the EIA (Energy Information Administration) inventory release – the data showed a huge 9.4 million barrels reported against a 2.5 million forecasted. Analysts are saying that this surplus will most probably impact the next two years: Daniel Ang from Phillips Futures stated on Wednesday that the current oil trend is a mirage, highly unsustainable due to oversupply. USD gained 160 pips against the CAD.

The previous week, Fed was declaring that their policy review rules out any imminent rate hikes, but since then a significant number of Fed members publicly announced their support for a rate hike in the month of April. Exactly a week ago, John Williams (President of San Francisco Fed) stated that a rate hike is most probable in April if June’s forecast will be positive. Although the so-called “dot plot” (FOMC’s – Federal Open Market Committee – rate hike projection plan) was lowered in the March meeting, Williams insisted that Fed hasn’t changed the initial rate hike number. Atlanta’s Fed Dennis Lockhart backed up the likeliness of a rate hike in the month of April. Support also came from other two Fed Presidents, meaning James Bullard and Patrick Harker. Bullard said on Wednesday that the very low levels of

Atlanta’s Fed Dennis Lockhart backed up the likeliness of a rate hike in the month of April. Support also came from other two Fed Presidents, meaning James Bullard and Patrick Harker. Bullard said on Wednesday that the very low levels of the unemployment rate in the US could force Fed to raise rates quicker than anticipated (meaning a probable hike would happen in April’s meeting). Harker pointed out the strong economy as the most compelling reason for a monetary policy rate hike.

Having these statements, and many others not quoted here, investors should be cautious when placing their funds due to a most likely possibility of Fed moving up the rates in April, the main factors influencing this decision being the employment rate and the inflation figures.

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Technical Strategist, CMT level 2 (MTA). Looking for good opportunities in the market, wherever they are, since 2009.

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