Canada ’s GDP numbers came in at their rate in six months, signaling that its economy is moving at close to capacity in terms of output. Its annualized growth rate is around 2%, well within the Bank of Canada’s parameters, thereby leaving interest rates on hold for the moment.
Oil prices fell slightly on the inventory numbers, however, a downward number was expected and the overall impact has been minimal.
USDCAD 1.2281, 1.2236, 1.2200 1.2335, 1.2345, 1.2370
USD-CAD has ebbed to a new four-month low, at 1.2271 as the U.S. dollar came under broader pressure. NAFTA uncertainty has leant limited offsetting support to the pairing, though with trade negotiations potentially playing out through 2018, the trade pact will likely fade to the backdrop until the next round kicks off in Mexico on February 26. Focus now will shift to today’s FOMC announcement and the Canadian November GDP, and December IPPI and RMPI figures. USD-CAD has resistance at 1.2310-11.
Cable has been coat-tailing EUR-USD over the last day, today logging a three-session peak of 1.4213 in lockstep with the euro making a fresh peak versus the greenback. Like EUR-USD, Cable subsequently came off the boil as markets look to the Fed’s policy announcement today and possibility for a hawkish ratchet in guidance. Sterling has been unaffected by yesterday’s leaked government report showing that the UK economy would be worse off under three different Brexit scenarios, which has been downplayed by a spokesperson of the PM and various other ministers. Data showing mortgage approvals at a near three-year low also cast little impact on the pound. BoE Carney testified before a House of Lords committee yesterday. He said that “the important thing with policy now” is that “slack in the economy has been taken out” and that “a more conventional area for monetary policy,” focused increasingly on returning inflation sustainably to target, is happening. He said that labour market has continued to tighten, and that there is a firming of wages. albeit “gradual.” Carney’s remarks had little impact, with markets looking to next week’s quarterly inflation report from the BoE for guidance. Cable has initial resistance at 1.4213-15.
EUR-USD has settled under 1.2450 after a couple of London morning forays above 1.2460 stalled. There are reportedly large options with strikes of 1.2500 rolling off at today’s New York cut, while the interbank and speculative market participants are reluctant to follow dollar declines with short positions into the FOMC announcement later today. While recent price action has been evidently bullish, with underlying dollar sentiment bearish, we still see risk for there being a relatively sustained correction in the pairing, which hasn’t seen much of a pullback since rallying from levels near 1.1900 on January 10th. The Fed is likely to see the Fed upgrade its balance of risks assessment with regard the growth outlook while working in a slightly more hawkish tone on inflation, which in the event would likely shore up some support for the dollar. This comes with the pace of recent euro gains having cast a dampening impact some of the hawkish voices at the ECB. Key for the dollar will be the reaction of global stock markets to the Fed’s guidance. Should it sharp a risk-off phase in global markets, this would likely underpin the dollar, while a risk-on-regardless reaction would likely see the buck resume its downtrend as investors seek out higher beta, higher yield assets around the globe.
USD-JPY ebbed to an intraday low of 108.28 during the London AM session after peaking at 109.09 in the Tokyo session. Dovish remarks came from BoJ deputy governor Iwata, who said that the central bank needs to “persistently” continue with accommodative monetary policy, and governor Kuroda, who said that there remains a long way to go to achieve the 2% inflation target. The remarks helped underpin yen crosses, such as EUR-JPY, which logged a two-day high of 135.34, despite softness in USD-JPY, which has been under pressure amid broader dollar weakness. USD-JPY has resistance at 108.50-51.