ATFX Outlook: The importance of the economic data to be released this week, from highest to lowest, is as follows: Bank of Canada's October interest rate decision, the Federal Reserve's Beige Book, and the World Bank Conference. Here is a detailed interpretation of each.
This Wednesday at 21:45, the Bank of Canada will announce the results of its October interest rate decision, with the mainstream expectation being that the benchmark interest rate will be lowered by 50 basis points to 3.75%. At 23:00 on the same day, Bank of Canada Governor Tiff Macklem will hold a monetary policy press conference. It is crucial to focus on his remarks regarding unemployment, inflation, and the path of interest rates. If his stance is dovish, it could impact the value of the Canadian dollar. So far this year, the Bank of Canada has cut interest rates three times, accumulating 75 basis points, which is higher than the Federal Reserve's 50 basis points. Continuous rate cuts can alleviate pressure on the labor market while reducing the attractiveness of assets priced in Canadian dollars. Since the first rate cut on May 31, the USDCAD has risen from 1.3681 to 1.3806, with a peak of 1.3947, an increase of nearly 500 basis points, indicating the negative impact of rate cuts on the value of the Canadian dollar. In September, Bank of Canada Governor Macklem stated that as we continue to make progress on inflation, it is reasonable to expect further reductions in our policy interest rates. It is this clear statement that has given market participants confidence in the interest rate cut this week. It should be noted that the past three rate cuts have been 25 basis points each, and the market's expectation of 50 basis points this time may not be met.
This Thursday at 2:00, the Federal Reserve will release its seventh economic conditions Beige Book for the year. The Beige Book is a compilation of reports from 12 regional Federal Reserve Banks, published eight times a year, and is an important reference for assessing the development of the US macroeconomy. The format of the Beige Book is relatively uniform, and comparing the content of the new and old reports is necessary to accurately detect changes in the economy. In the Beige Book released in September, it mentioned: "Economic activity in three districts increased slightly, while the number of districts reporting flat or declining economic activity increased from five in the previous quarter to nine in this period." If the number of districts with increasing economic activity in the Beige Book released this time is greater than three, it means that the US macroeconomy is warming up, and the pace of Federal Reserve rate cuts is expected to slow down. On the contrary, it means that the macroeconomy continues to be weak, which is bearish for the US dollar index.
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From Monday to Saturday this week, the IMF-World Bank will hold the 2024 Annual Meetings in Washington. At that time, finance ministers and central bank governors from various countries will gather to discuss topics such as the global economic outlook, poverty eradication, and green energy transition. A week before the start of the meeting, IMF Managing Director Kristalina Georgieva said: "When we look at the challenges ahead, the biggest challenge is low growth and high debt." Based on this, the meeting is likely to focus on the rising debt issues of various countries. According to existing data, the US debt-to-GDP ratio is 122.3%, far above the reasonable range of 40-60%. In addition, the Eurozone's ratio is 88.6%, Germany's is 63.6%, Japan's is 255.2%, and the UK's is 97.6%, all above the reasonable level. Under such high debt levels, the GDP growth rates of major economies are generally below 1%, indicating that the stimulative effect of high debt on the macroeconomy is becoming weaker and weaker.
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