BOC Cut in Doubt

A drop in oil prices did little to stifle the Canadian economy in the second half of 2014. The first reading on Q4 GDP showed a 2.4% increase compared to 2.0% expected. Q3 was also revised to 3.2% from 2.8% and combined it put annual growth slightly ahead of the US at 2.5% for 2014.

The loonie initially jumped 80 pips on the report but later gave up more than half the gains. In part because two-thirds of the quarterly growth was due to inventory building. A late, broad recovery in the US dollar was also a factor.

The more important factor in the day ahead is the Bank of Canada. In mid-February the market was pricing a 75% chance of a cut but that's dwindled to 25% after a series of better data points including employment, retail sales and CPI. Poloz and Cote also dropped small hints about waiting on the sidelines while oil prices are about $3 higher than they were at the last meeting.

Overall, if Poloz had an doubt about a March rate cut a month ago, it would have been solidified by the latest economic numbers. With a large net short position in CAD, expect a bump on the announcement but not to the magnitude of the Aussie on Tuesday.

On that front, the AUD/USD bulls were likely disappointed with the lack of follow through following the RBA. The pair made a marginal fresh high in US trading but then sagged back down to 0.7810. A similar lack of follow through is likely in loonie trades if the BOC holds (barring any big moves in oil).

Before the BOC, it's a busy day for data in the Asia-Pacific region. It starts with Australian Q4 GDP at 0030 GMT. The consensus is for a 0.6% q/q rise in growth. But if the RBA could offer a lasting boost to the Aussie, why would a stale GDP report?

Next is a speech from Yellen at 0115 GMT. The topic is bank regulation and Yellen has never been known to go off script but a hint at removing 'patient' would send the dollar surging.

Next is the Japan services PMI from Markit at 0135 GMT and the China services PMI from HSBC 10 minutes later. Neither are traditional market movers but traders are beginning to get skittish about China so we rule nothing out.