U.S. stocks fell the most since last week’s rout as investors continue to grapple with higher rates at the same time the Trump administration’s trade war with China adds to concern over global growth. Treasuries rose with gold.
Fears that China might be unable to withstand a further economic contraction is having a ripple effect to it s stock markets. Investors are selling their positions rather than wait for any margin calls, at which time the back office clerks simply sell the positions no matter what the loss.
As a result the USD continues to maintain its dominance in the currency markets as investors buy more conservative assets.
USD-CAD has lifted to a one-week high of 1.3055 in the wake of the Fed minutes to the late-September FOMC meeting, which showed policymakers remaining committed to a gradual tightening course.
A near 3% dive in oil price was also in the mix, as this weighed on the Canadian Dollar. Canada releases September CPI on Friday, which is seen rising 0.1% on a month comparable basis after the 0.1% rise in August. Annual CPI growth is projected to slow to a 2.7% y/y pace in September from 2.8% in August and the lofty 3.0% growth rate in July, adding further support to the Bank’s view that the run-up in CPI through July was due to temporary factors that are now unwinding.
August retail sales (Friday) are expected to improve 0.6% after the 0.3% gain in July. Overall, the data should be supportive for the Canadian currency. We expect the BoC to hike 25 bp at the October 24 announcement and have pencilled in three to four 25 bp rate hikes in 2019.
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