As expected, the Bank of Canada held its policy interest rate steady at 1.0 percent following back-to-back rate increases in July and September. The Bank took a markedly more cautious tone in October and since then has shown no sign of changing tack. The Bank Rate is correspondingly 1.25 percent and the deposit rate is 0.75 percent. The BoC said that based on the outlook for inflation and the evolution of the risks and uncertainties identified in October’s MPR, the Governing Council judged that the current stance of monetary policy remained appropriate. While higher interest rates will likely be required over time, Traders will now wait for the expected rate hike next week from the Federal Reserve.
The Canadian dollar fell immediately after going from 1.2675 to current levels in a matter of minutes, also creating a negative effect on the CAD, oil prices fell 1.5%, due to the higher gasoline inventory numbers. However, overall oil inventory levels are lower than this time last year.
The yen rallied on a safe haven, while the Australian dollar and pound underperformed on the respective influences of sub-forecast Australian growth data and rekindling Brexit-related angst. Stock markets in Asia and Europe were a sea of red today. A miss in Australian Q3 GDP, softer oil prices, tech sector woes, Brexit-related anxieties, and concerns about the lofty valuations of stock markets, have collectively been weighing on global equity markets, in turn pushing up safe havens, such as the Japanese currency and gold (and some say Bitcoin’s run above $1200 is safe-haven driven). USD-JPY has plumbed four-session low just under 112.00, building on the decline from Monday’s peak at 113.06. EUR-JPY and other yen crosses are also down. AUD-JPY, the forex market’s best proxy of a risk appetite gauge, was showing a loss of nearly 1% at its lows. EUR-USD was comparatively uneventful, plying a narrow range in the lower 1.18s, near net unchanged on the day.
USD-CAD 1.2748, 1.2730, 1.2715 1.2781, 1.2798, 1.2815
XE North American Forex Market Analysis:
EUR-USD has continued to ply a relatively narrow range in the lower 1.18s. The pair is trading near the midway point of the range that’s been seen over the last three months, and we e anticipate that the broadly sideways chop will continue for now in the absence of direction-shifting data or news from either side of the pond. Resistance is at 1.1905-10, and key support is at 1.1800.
The yen has rallied amid a risk-off mood in global markets. A miss in Australian Q3 GDP, soft oil prices, tech sector woes, Brexit-related anxieties, and concerns about the lofty valuations of stock markets, have collectively been weighing on global equity markets, in turn pushing up safe havens, such as the Japanese currency and gold (and some say Bitcoin’s run above $1200 is safe-haven driven). USD-JPY has plumbed four-session low just under 112.00, building on the decline from Monday’s peak at 113.06. EUR-JPY and other yen crosses are also down. AUD-JPY, the forex market’s best proxy of a risk appetite gauge, was showing a loss of nearly 1% at its lows. USD-JPY has trend support at 111.78-80, and resistance at 112.37-40.
Sterling is among the biggest losers as markets lose some of their recent faith that the UK and EU are near to finding an accord on divorce terms, with the Irish border, and a backlash against the proposed “regulatory alignment” deal, remaining a key sticking point. Cable hit a five-session low of 1.3361. As EU officials have been stressing, a deal on divorce terms has to be struck by the end of the week, ahead of the upcoming EU leaders’ summit, if there is any chance that talks can move on to a post-Brexit trade deal, which is generally seen as crucial given that there is only 15 months until Brexit happens. The risks for sterling remains to the downside.
EUR-CHF has seen volatile price action over the last several sessions, having on Friday turned sharply lower, to a low of 1.1599 after clocking a 35-month high of 1.1737, and subsequently, yesterday, lifting briefly back above 1.1700. There have been multiple failures to sustain gains above 1.1700 over the last month, and market participants will be wary of supply above this level. We remain bullish over the medium term, however. Assuming the Eurozone has conquered, or can conquer, existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable, we anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1650.
USD-CAD has lifted back to the 1.2700 level after yesterday clocking a six-week low of 1.2623, which capped a downward run that’s been in play since last Friday’s release of forecast-busting Canadian GDP and employment data. Softer oil prices and a broader risk-off mood in global markets has taken the draw out of the downward move in USD-CAD, which has in turn elicited some position trimming. We expect the near-term bias will remain to the upside. The BoC meets on policy today, where a no change in expected to the 1.0% policy rate is widely anticipated. Policymakers have been emphasizing since the September rate hike that the BoC is in an “intense data dependent mode” and will be cautious in the removal of further stimulus. Uncertainty about ongoing NAFTA negotiations is an added factor. We expect the central bank to maintain a cautious, data dependent approach to further stimulus removal and still see a 40/60 split on the odds for a move in January or March. USD-CAD has support at 1.2614-25, and resistance at 1.2717-18.