The on-again, off-again on whether the Bank of Canada will hike rates went back into the on-again camp. Bank of Canada Governor Poloz said that the BoC is still sticking to its plan of raising rates as needed, even with rising trade tensions. The reason is that Canada’s inflation rate is at the top end of the range of 2% target. Traders have now put a 70% chance of hike at the next meeting.
Also, oil is moving higher, it’s at a three year high as oil inventories continue to fall, currently West Texas Intermediate is $73.62 USD a barrel, up 1.18%, if this goes higher, then CAD traders cannot ignore such a significant move.
USDCAD 1.3211, 1.3200, 1.3120 1.3280, 1.3300, 1.3308
USD-CAD spiked to 1.3387, a new one-year high, in the initial wake of a speech by BoC Governor Poloz yesterday, though quickly fell back under 1.3350 as his Q&A showed him still very much advocating for higher rates. That and the surge in oil prices over the last week have given the market reasons to buy Canadian dollars. USD-CAD has support at 1.3280.
EUR-USD lifted out of lows, earlier printing a new five-session nadir at 1.1527 before recouping above 1.1560. The pair remains in 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. Trade tensions have been overriding normal fundamental leads. The view on the street is that a scenario of a deepening and prolonging trade way would be bullish for EUR-USD, given the vulnerability posed to the dollar by the U.S. twin deficits during any sustained episode of risk-off-driven capital flight. Any sign of a negotiated resolution would conversely be bearish. Support is at 1.1508-10.
Sterling is back on an underperforming path, showing a 1.3% decline versus the dollar over the last week, and respective falls of 1.0% and 0.7% against the yen and euro. Cable has pegged a fresh seven-month low at 1.3066. The increasingly urgent and ever fraught Brexit process, with major and minor businesses (including Airbus), warning that government to get a move on with regard to assuring that there will be a smooth post-Brexit customs border, has been weighing on sentiment. Things are coming to a head into tomorrow’s EU leaders’ summit. There have been reports that many EU nations have been intensifying work on contingency plans for a no-deal scenario. Danish PM Rasmussen said yesterday, for instance, that “it is the first time we are saying clearly to the British that we can end in the worse scenario” with no deal. The BoE has long since caveated that its relatively upbeat prognosis of the UK economy hinges on a smooth Brexit. A slew of UK data are due in the final part of the week, including consumer confidence, third-release Q1 GDP and current account figures, though focus will be more on Brexit developments at the EU’s summit.