Intraday Market Thoughts

Onto the Bank of Canada

by Adam Button
Mar 6, 2019 14:20

Will the Bank of Canada decision finally move these quiet markets? The announcement (no press conference) is due in about 30 mins from now (10:00 EDT, 15:00 GMT/London, 19:00 Dubai). Will they reverse their hawkish stance? See further below. EUR briefly fell on reports that the ECB will cut its economic forecasts to justify a fresh bout of loans to banks according to unnamed sources. More details emerge in Thursday's ECB announcement. Below is the Premium video outlining the latest index trade.

Will the BoC Reverse?

The loonie is growing more vulnerable to USD strength. The Bank of Canada gathers shortly at a non-press-conference meeting. A change in interest rates is extremely unlikely, but the BOC will surely acknowledge that its base case of rising investment and solid growth is off-track. The key for the market will be whether the BOC abandons its current hiking bias at the end of the statement. The current phrase is that "the policy interest rate will need to rise over time into a neutral range to achieve the inflation target."

Most economists think they will wait until new forecasts at the April meeting to remove it but in the past they haven't been against moving earlier once they see which way the wind is blowing. Still, it would be a surprise and put USD/CAD on a path to 1.35.

ISM Boost to US Outlook

Signs emerged yesterday that the US economy is holding up as the ISM non-manufacturing index jumped to 59.7 from 56.7. The market periodically flirts with worries about a US slowdown and that's been evident over the past week but with the survey climbing back near cycle highs and the US-China trade spat likely headed towards a deal, the outlook has brightened. Looking ahead, a jump in new orders to the highest since 2005 points to solid growth after a poor Q1.

EUR/USD hit a one-week low of 1.1286. A rebound in US growth combined with the continued malaise in Europe threatens a fresh decline. EUR/USD has been relatively quiet in a 1.12-1.15 range in the past four months but the 2018 low of 1.1213 remains within striking distance and a break could spark a quick fall.


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