Intraday Market Thoughts

CAD Outperforms on BoC, Oil

by Adam Button
May 25, 2016 23:51

The Bank of Canada took a more-neutral stance than expected on Wednesday and along with rising oil prices that helped made the Canadian dollar the top performer while the yen lagged. Australian capex data and the New Zealand budget are due later. The Premium Insights added a 2nd CAD long to the trades ahead of the BoC decision and EIA inventory announcement. Full rationale and charts analysis to the CAD and other trades is in today's Premium Video.

Most analysts were looking for a hint at a lower trajectory for growth and inflation from the BoC but the communication was strictly neutral. Growth will be dinged by the forest fires in Q2 but the BOC expects a positive payback in Q3 and said the economy was evolving as expected.

They added a touch of skepticism on oil prices as they noted that temporary supply disruptions were helping to lift prices. In policy, however, the BOC will deal with whatever the oil market delivers. On Wednesday, it was more gains on the back of tighter supply in the API and EIA reports. WTI finished more than $1 higher to $49.65. The $50 level is a psychological level but the October high of $50.92 is the technical one to watch.

US dollar news was mixed. The advance trade balance report showed a $57.5B deficit compared to $60.0B expected but the Markit services PMI slipped to 51.2 from 53.0. In broad terms, the dollar was little changed despite another strong day in the stock market.

Cable closed at the highest level since early January and is nearing the May intraday high of 1.4770. Oddsmakers now see a Brexit as a longshot and that's helping to fuel gains.

The Australian dollar bounced around by risk sentiment and the falling Chinese yuan. Today the focus shifts to investment spending and forecasts are for a 3.5% contraction in Q1 in the 0130 GMT report. The number will offer some insight into how deeply mining companies have retrenched but at the same time, if resource prices can hold, that might represent a trough.

The other event to watch is the New Zealand budget at 0200 GMT. Any measures to cool the housing market would give the RBNZ more leeway to cut rates. Alternately, extra stimulus may lead Wheeler to believe that better growth and inflation numbers are in the pipeline.


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