BoC Greenlights CAD Shorts, China PMI Next

The Bank of Canada took a tiny step toward rate cuts but that was all encouragement the market needed to buy USD/CAD. The loonie was easily the worst performer while GBP continues to lead. Up later is the first look at the Chinese manufacturing PMI from HSBC.

The Bank of Canada rate decision tells us more about the market than the central bank. Many analysts expected a shift toward a dovish stance but the BOC retained a neutral bias. That was plenty for the market as USD/CAD shot more than 100 pips higher to a fresh four-year high at 1.1093. Coming into the year, USD/CAD longs were a trader favorite and the big rally in the pair has transformed curiosity into enthusiasm.

Granted, there were some reasons to buy in the BOC statement. Officials said the Canadian dollar remained strong and Poloz said that balance of risks on inflation tilted 'just a little' toward lower disinflation worries.

One development that's not as dovish as it seems was the BOC's move to lower inflation projections. Cutting those forecasts while retaining a neutral bias allows them to shrug off lower near-term inflation readings without facing pressure to act.

Outside of Canadian dollar trading, volatility was modest in New York hours. USD/JPY remains constrained in a 105.50 to 103.85 range and until that breaks it's difficult to envision lasting moves.

The calendar highlight in Asia-Pacific trading is the Chinese flash private manufacturing PMI from HSBC at 0145 GMT. The consensus is for a four-month low at 50.3 after a reading of 50.5 last month.