Currently Close Range
USDCAD 1.3105 1.3085 1.3066-1.3108
EURCAD 1.5388 1.5369 1.5366-1.5416
GBPCAD 1.7352 1.7373 1.7321-1.7479
There is now an 80% chance that the Bank of Canada will hike interest rates on Wednesday, analysts full expect a 25 basis point move higher.Expect a narrow range till then.
[USD, CAD]
USD-CAD has firmed up a little after posting a three-week low at 1.3069, which extended the correction from a one-year high that was pegged at 1.3387 in late June. Expectations for the BoC to hike rates this week, along with the big surge in oil prices have buoyed-up the Canadian dollar. We expect the BoC to hike interest rates on Wednesday by 25 bp, which would take the overnight target rate to 1.50%. The accompanying monetary policy report should be consistent with additional rate increases, though at a gradual pace. USD-CAD has support at 1.3053-55, and resistance at 1.3129-30.
[EUR, USD]
EUR-USD has rallied for a third consecutive session, posting a fresh three-week high at 1.1781. A risk-on revival in global asset markets following the solid U.S. jobs report coupled with a run of encouraging data releases out of the Eurozone, have underpinned the pairing. Despite recent gains, EUR-USD remains in a broadly consolidative phase after a downtrend from mid-April levels above 1.2400. The range over this phase has been 1.1508 to 1.1851. More of the same looks likely for now. A major “known unknown” is to how deep and how prolonged the Trump-led trade war with major economies will be, and what economic and currency market fallout this will cause. This is, for now, curtailing directional commitment.
[GBP, USD]
Sterling has outperformed most currencies so far today, presently showing an average 0.3% gain versus the dollar, euro and yen, as of the late London AM session. Only the Australian dollar is stronger today out of the currencies we keep tabs on. The reason is that the British government, after more than two years since the vote-to-leave the EU, finally worked out what it wants from a post-Brexit deal with the union, hammered out in a climactic Cabinet meeting on Friday, which saw the hard Brexiteers give up ground to reach a compromise. Cable and GBP-JPY lifted to respective three-week highs at 1.3362 and 147.56, while EUR-GBP dipped to two-session low of 0.8813. We don’t expect that the Brexit discount the pound is trading at, which we estimate to be around 10-12% in trade-weighted terms, will unwind much as there remain significant uncertainties, such as the fact that it looks doubtful that the EU will agree to the free market for goods that the UK government is wanting, and it remains uncertain how effective the proposed “frictionless customs arrangement” will be, and, related to these, how the politically charged Irish border issue will be resolved. Cable has resistance at 1.3390-92.
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