The BOC Doesn’t Guide

Global indices are lower across the board after last night's White House announcement that it started the process of imposing tariffs on an additional $200bn of imports from China. This will not only trigger further action from China at the expense of further declines in CNY and gold.  The DAX short was stopped out yesterday 12580. A new Premium index trad ehas been posted & sent.  All eyes shift to the Bank of Canada decision at 15:00 BST/London Time.

In the past decade the market has been conditioned toward central bank signals but the BOC decision on Wednesday will have a different set of rules. Sterling was the top performer on the day while the yen lagged until China tariff headlines hit. CFTC positioning shows specs betting on a dovish Bank of Canada.

BOC Governor Poloz has a problem with forward guidance. He doesn't believe in signaling to markets about what's coming next. Instead, he touts data dependence and says each BOC statement is a blank canvas. So when today's statement is released, it will almost-certainly include a rate hike (the OIS probability is up to 96%) but the accompanying commentary shouldn't be taken as any kind of strong guidance.

At the moment, much of the talk doing the rounds is suggesting the BOC will deliver a dovish hike; they will raise rates but signal a move to the sidelines. That would be a complete departure from Poloz's preference against forward guidance.

Instead, the statement is likely to have references to better hiring, sales and high capacity pressures that were outlined in the Business Outlook Survey. The talk of gradual hikes is also likely to be repeated along with the usual nod to trade risks. On net, this is more likely to read as a hawkish statement and hurt USD/CAD.

In the bigger picture, trade fears are ramping back up on reports that the US could soon release a list of tariffs on $200 billion in imports. The broader risk in the day ahead is that the short-lived trade optimism on trade could come crashing down.

CFTC Commitments of Traders

EUR +37K vs +34K prior GBP -29K vs -22K prior JPY -39K vs -34K prior CAD -49K vs -33K prior CHF -40K vs -38K prior AUD -39K vs -41K prior NZD -26K vs -18K prior

The CFTC numbers were released late Monday after the US holiday and are a bit dated but the rise in CAD shorts (they were -14K two weeks ago), show the loonie risks could be tilted to the upside – ie. lower in USD/CAD