Intraday Market Thoughts

BoC No Reason to Buy CAD, China PMI Next

by Adam Button
Oct 22, 2014 23:11

The Canadian dollar rallied after the Bank of Canada decision but there was nothing in the documents pointing to a more hawkish BOC. The US dollar led the forex market on the day while the euro lagged. The NZD is lower in early Asia-Pacific trading on CPI data. CAD took the attacks in Canada's parliament in stride, while the major news of the week will likely be tonight's China flash HSBC manufacturing PMI and tomorrow's services PMI from the Eurozone. A new set of Premium Insights will be released tonight. All two GBPUSD remain in progress and nearing the final targets, following the BoE minutes and Thursday's UK retail sales. AUDUSD and NZDJPY also remain in progress.

The main headline from the BOC was the removal of the explicit “neutral” reference but it was simply replaced by other words that say the exact same thing. Moreover, Poloz warned that explicit forward guidance would be removed before the decision so it should have been no surprise.

In addition, the BOC pushed back its forecast for full capacity in the economy to H2 2016 from mid-2016, a signal rates will stay lower for longer.

Earlier in the day, Canadian retail sales also fell 0.3% ex autos compared to a flat reading. That number may overstate the weakness because it was driven by soft gasoline sales but it was still a soft report.

Mixed in was the tragic shooting near Canadian Parliament. It caused some fear in the Canadian stock market but was only a small factor, if any, for the loonie.

A larger factor is oil and prices continue to fall in something likely to hurt CAD. The $2 fall in WTI was large but the Canadian benchmark – Western Canada Select – fell nearly $4 to $65.02.

Yet another reason USD/CAD should be rising instead of falling is that it looks like hopes for billions of LNG investment on Canada's west coast is coming off the rails. The BC provincial government cut a proposed tax there in what looks like a panic move to keep projects alive.

In the bigger picture, the softening euro on expectations of a weak economy and corporate bond buying stands outside of the choppy risk trade that's dominating.

Early in Asia-Pacific trading the kiwi is down a half cent to 0.7877 after CPI rose just 1.0% y/y compared to 1.2% expected in the lowest reading in a year. The New Zealand dollar held up well in the risk rout but a fall below 0.7800 would end the string of higher lows.

Act Exp Prev GMT
Markit Manufacturing PMI (OCT) [P]
57.0 57.5 Oct 23 13:45
Markit PMI Composite (OCT) [P]
59 Oct 23 13:45
Markit Services PMI (OCT) [P]
58.9 Oct 23 13:45
50.3 50.2 Oct 23 1:45
Eurozone Markit PMI Composite (OCT) [P]
51.7 52.0 Oct 23 8:00
Eurozone Markit PMI Manufacturing (OCT) [P]
49.9 50.3 Oct 23 8:00
Eurozone Markit Services PMI (OCT) [P]
52.0 52.4 Oct 23 8:00
Consumer Price Index (Q3) (q/q)
0.5% 0.4% 0.5% Oct 22 0:30
RBA trimmed mean CPI (Q3) (q/q)
0.4% 0.5% 0.7% Oct 22 0:30
RBA trimmed mean CPI (Q3) (y/y)
2.5% 2.7% 2.8% Oct 22 0:30
Consumer Price Index (Q3) (y/y)
2.3% 2.3% 3.0% Oct 22 0:30
CPI (Q2) (q/q)
0.3% 0.5% 0.3% Oct 22 21:45
CPI (Q2) (y/y)
1.0% 1.3% 1.6% Oct 22 21:45
Retail Sales (Aug) (m/m)
-0.3% 0.2% -0.1% Oct 22 12:30
Retail Sales (SEP) (m/m)
-0.1% 0.4% Oct 23 8:30
Retail Sales ex-Fuel (SEP) (m/m)
-0.2% 0.2% Oct 23 8:30
Retail Sales (SEP) (y/y)
2.8% 3.9% Oct 23 8:30
Retail Sales ex-Fuel (SEP) (y/y)
3.4% 4.5% Oct 23 8:30

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