BOC in a Bind, More Aussie Data Next

The Bank of Canada hinted a sooner hate hikes and boosted the Canadian dollar to the best performance in the FX market on Wednesday. The euro was the laggard as it and the yen near key levels. The Australian dollar also remains under pressure with trade and retails sales data due next. Our USDCHF and AUDCAD Premium trades are netting +70 pips each, while USDJPY is up more than 100 pips. All the trades will be impacted by the Aussie data and ECB announcement. 

The BOC was caught between signs of a stronger economy and falling oil prices but overall they were more optimistic on the economy. There was no change in the official bias but the statement said the output gap is smaller than expected and also applauded better exports and a stronger US.

USD/CAD fell to 1.1350 from 1.1410 on the decision and the Canadian dollar made larger gains elsewhere, including AUD/CAD where shorts are a theme we have been endorsing. Canada is well-positioned to continue benefiting from a stronger US and some of the concerns in the energy sector are overstated.

On Wednesday, the more-general theme was US dollar strength and that pushed USD/JPY to within a shade of 120 and EUR/USD to a low of 1.2301. Those two big figures will be major levels to watch with the ECB decision in the day ahead.

Sterling was able to buck the trend and climb to 1.5720 as Osborne handed out some pre-election goodies that could help growth in 2015 – although slower estimates of growth and inflation make it unlikely the BOE will hike next year.

In the hours ahead, the Australian dollar will remain in focus with trade data and retail sales due at 00:30/London. Exports were surprisingly weak in the Q3 GDP report so a part of the focus will be there but the main event is retail sales, which are expected up 0.1%.

Consumer continue to hold the line under a suddenly-weak Australian economy but if they stumble, talk about RBA cuts could resume just two days after the latest decision.