- Canada growth expected to slow in August
- ECB surprised with dovish rate hike which helped to boost the US dollar
- US rebounds and opens with gains across the board.
USDCAD snapshot open 1.3610-14, overnight range 1.3527-1.3628, close 1.3566, WTI $88.11, Gold $1649.46
The Canadian continues to trade erratically thanks to unsettled equity markets and the fall-out from yesterday’s ECB monetary policy meeting.
The Bank of Canada surprised markets when they only raised the overnight rate by 50 bps despite earlier hints by Tiff Macklem that another 75 bp bump was in the cards.
By slowing the pace of rate hikes before the Fed adopts a similar stance suggests Canadian dollar upside is limited.
The European Central Bank were just as dovish but in a more subtle way. They raised the overnight rate by 75 bps as was widely telegraphed then tweaked the policy statement to remove the reference to “additional hikes at the next several meetings.” They also claimed that “substantial progress being made in withdrawing monetary accommodation.”
The ECB’s terminal (or neutral) rate was reduced to 2.50% from 2.80%. Its hard to believe that hiking interest rates to just 2.50% will be sufficient to beat down inflation which for the euro area was9.9% in September.
The US dollar closed with gains and the trend continued overnight as a fresh round of negative risk sentiment from sharply lower tech stocks, enveloped markets.
Meta shares fell to the lowest level for 2016 yesterday, and Amazon sharply lowered its Q4 sales forecast and its shares lost 19% overnight. The news sent shock waves across Asian and European equity indexes.
Hong Kong’s Hang Seng Index plunged 3.66% and Australia’s ASX 200 index dropped 0.87%. European bourses are in the red led by a 0.55% fall in the German Dax. Wall Street is poised to open mixed. DJIA futures are close to unchanged while S&P 500 futures are down 0.54%.
The US dollar is getting support from rebounding Treasury yields. The 10-year Treasury yield dropped to 3.91% in Asia then climbed to 4.01% in NY. Despite the rally, yields are still below the 4.07% peak yesterday.
The Bank of Japan monetary policy meeting was the highlight of the Asia session, but as usual, it didn’t offer any surprises. The BoJ left rates and their dovish outlook unchanged.
Canada’s August GDP is expected to be close to unchanged from July’s 0.1% increase.
