Intraday Market Thoughts

Fed Finds Doubt, BOC Finds Confidence

by Adam Button
May 24, 2017 23:05

The FOMC minutes showed that officials aren't dead-set on hiking in June and beyond. That led to a US dollar lagging Wednesday while in contrast CAD led the way after the BOC statement hinted that policymakers are growing more optimistic about growth. Next, it's onto comments from Evans, Sakurai and Debelle. A new GBP trade has been issued in addition to the 5 existing Premium trades.

USD/CAD fell a full cent on Wednesday as commentary from the Fed and BOC diverged. Two weeks ago, a Fed hike was seen as a done deal but soft data has clouded the picture. The minutes said that most policymakers wanted to hike soon but generally agreed that it would be prudent to make sure the recent slowdown in growth is only a blip before hiking again. And that was before soft retail sales and CPI.

Plenty of economic data remains to help shape the Fed's view but the broad half-cent drop in the US dollar after the minutes showed doubts creeping in. The CME Fedwatch implied probability of a hike remains at 82% but that will be sensitive as top-tier economic data begins to roll in.

In contrast, the BOC was pessimistic early in the year but has been bombarded with strong economic data. Poloz largely brushed it off but in the latest BOC statement he changed tack and acknowledged improvements in housing, consumer spending, jobs and business investment.

The statement said the neutral stance was 'still' appropriate but that time qualifier shows it won't take much more to tilt the balance to hawkish.

The Canadian dollar climbed across the board despite a 20-cent dip in oil. The pair will be back in focus on Thursday with the OPEC decision due. It's been widely communicated that a 9-month extension is coming but the risks remain to the upside until the headlines are fully digested.

Before the focus shifts to OPEC, central banks speakers from around the world will take centre stage. It begins at 0125 GMT with the Fed's Evans. He could single-handedly beat back the dovish Fed sentiment. He's followed 5 minutes later by the BOJ's Sakurai. Then, at 0800 GMT, the RBA's Debelle speaks in London. The New Zealand budget at 0200 GMT could also be a market mover.

Act Exp Prev GMT
FOMC's Brainard Speaks
May 25 14:00
Gov Council Member Leduc Speaks
May 25 16:00

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