- BoC hiked rates 50 bps, surprising many traders
- ECB expected to raise rates by 75 bps
- US dollar recoups some losses overnight
USDCAD snapshot open 1.3601-04, overnight range 1.3541-1.3594, close 1.3556, WTI $87.77, Gold $1662.41
The Canadian has enjoyed a topsy-turvy twenty-four hours. Prices were roiled by the Bank of Canada’s interest rate decision, skittish US equity markets, and ongoing chatter about the possibility of a Fed-pivot.
USDCAD spiked to 1.3650 from 1.3545 in the wake of the BoC’s decision to raise its benchmark rate 0.50 bps, instead of the 75 bps that was widely expected. That move was fully reversed as quick as it rallied as traders shifted their focus to broad US dollar price action against the G-10 major currencies.
The smaller than expected rate hike is a tad confusing as the admitted that “measures of core inflation are not yet showing meaningful evidence that the underlying price pressures are easing.” They BoC also said that interest rates need to rise further.
Governor Tiff Macklem justified surprising markets with a smaller rate hike by saying policymakers “are trying to balance the risks of under- and over-tightening.”
That would be a good reason except the only reason inflation slowed was because of lower gasoline prices. Opec production cuts, sanctions on Russia, and pending Chinese demand will ensure oil prices do not fall much further.
The Bank’s concern about balancing over and under-tightening do not mesh with its own inflation concerns. The monetary policy statement noted, “The Bank’s preferred measures of core inflation are not yet showing meaningful evidence that underlying price pressures are easing. Near-term inflation expectations remain high, increasing the risk that elevated inflation becomes entrenched.”
EURUSD traded sideways in a 1.0031-1.0093 range ahead of the ECB monetary policy decision. A 75-bps hike is fully priced, suggesting the risk is for a smaller bump. The BoC surprised with a dovish hike-why not the ECB? More than likely, the ECB will stick to a hawkish tone. A decisive break above 1.0050 targets 1.0180.
GBPUSD is trading just above the bottom of its 1.1551-1.1645 range. Today’s GBPUSD direction will be determined by the ECB meeting.
USDJPY bounced in a 145.12-146.71 range and is at the top of that band in NY. Prices continue to be supported by higher US Treasury yields while BoJ intervention fears limit gains.
AUDUSD rallied in Asia rising from 0.6476 to 0.6521 after two highly rated economists predicted the RBA would hike rates by 50 bps on November 1, rather than the 25 bps previously forecast. The upgraded rate hike forecast is due to the hotter then expected Australian CPI reading. However, the gains were erased in Europe and prices dropped to 0.6453 in NY.
