Bank of Canada Governor Poloz stated this morning that the nation’s economy is still not running at full capacity and that there were enough untapped resources to allow the economy to grow without increasing inflation. This means the BoC is in no hurry to hike interest rates even if the U.S. hikes in the near term.
Oil prices have dropped slightly, falling 1.1%, continued U.S. growth in shale production is overhanging the market.
Meanwhile Moody’s has now joined the Bank for International Settlements and S&P, that Canada’s banking system is becoming more fraught as Canadian household debt has reached an all-time high.
USDCAD 1.2905, 1.2898, 1.2888 1.2948, 1.2980, 1.2990
USD-CAD has lifted for a second day, logging a two-session peak at 1.2861. This follows a four-day run lower as the Canadian dollar found its feet following news that Trump will exempt Canada, along with Mexico, from his proposed steel an aluminium tariffs (although temporary and subject to how the White House sees NAFTA negotiations go). We anticipate that USD-CAD will remain in a consolidation for now. Momentum indicators had been flashing “overbought” lately following a strong six-week rally from sub-1.2300 levels, which capped out last week at 1.3001, which is an eight-month high. Today’s Canadian calendar is quiet, highlighted by a speech by BoC Governor Poloz.
EUR-USD is trading without direction, having ebbed back from the Asia-session high at 1.2345 and then recouping from intraday low at 1.2314 and settling around 1.2330. EUR-JPY has traded at three-week highs on the back of yen underperformance, while most other euro crosses are chopping broadly sideways. In the bigger view, EUR-USD has returned to midway levels of a range that’s been seen since late January, which marks a consolidative phase after rallying out of sub-1.1600 levels that were seen last November. More of the same looks likely for now, though market participants will be paying close attention to the U.S. February release later Last month’s sub-forecast release prompted a fairly steep drop in the dollar. We expect an unchanged 2.1% y/y outcome in headline CPI, which matches the median forecast. EUR-USD has support is at 1.2275.