BOC Senior Officials Emphasize Gradual Moves when it comes to Setting Interest Rates.
Friday 7 September, 2018
Daily Currency UpdateThe Canadian dollar gained 0.5% yesterday reversing this week's losses. The catalyst behind the loonie jump was the upbeat message from Senior Deputy Governor of the Bank of Canada Carolyn Wilkins speech in which she describes the Canadian economy as being on “solid footing” and households are “adjusting well” to higher interest rates. All signs and signals are there for the BOC to raise the rate at it next scheduled interest rate announcement and monetary policy report due on October 24, 2018. Wilkins cited the "gradual" approach that the central bank is taking as appropriate as the recent spike in inflation is seen as temporary and not because of over demand. Canada remains out of a trade agreement with NAFTA negotiations still ongoing, and this is also in the economic model the BoC use to calculate if a hike is “prudent at this juncture.”
Statistics Canada released the late Canadian job numbers this morning last month 54K on full employment for July expectations for August is mediocre 5k, and the Canadian unemployment rate is expected to rise to 5.9% from 5.8% as employment slips. Later this morning we have Ivey PMI for August posted at 10 am previous was at 61.8. Support remains at 1.3114 while resistance is at 1.3201.
Key MoversThe Dollar pared recent gains, edging lower through trade on Thursday as investors positioned themselves ahead of Friday's jobs data. Having touched two-week highs on Tuesday, the dollar uptick stalled as investors prepare for a softening or slowdown in payroll performance. Thursdays ADP private payroll report printed below expectations. While typically a foreshadowing indicator of broader labor market performance the softer read could suggest employment, growth is starting to turn following a sustained and long-term upside.
Falling two-tenths of a percent the dollar index correction was amplified by a push toward safe-haven JPY and CHF as trade concerns continue to weigh on the minds of investors. While we expect investors to buy into the dip a softer labor market and wage growth print may prompt a deeper correction into the weekend.
Attentions remain squarely focused on Non-farm payroll data while trade and emerging market concerns dictate broader risk appetite demand. Markets will be keenly attuned to any announcement regarding the imposition of additional US tariffs as the period for public consultation on an additional 200bn in China trade taxes ends today.
The euro traded within a tight range for most of Thursday with little to excite investors on the domestic calendar.
The market remains relatively skittish this week as the risk-off environment continues to dominate market sentiment. Looming over market movements is the on-going US-China trade war which will potentially escalate further today leaving the euro in a holding pattern ahead of this news. Supporting the euro within this context was a poor US non-farm employment reading with 163,000 jobs added against the expected 190,000, which saw the USD depreciate marginally against many currencies, including the single currency.
The Great British Pound extended gains on Thursday on the back of a weak US dollar but remained well below highs hit in the previous session due to uncertainty over the progress of the Brexit negotiations. The GBP/USD pair reached a 24-hour high of 1.3026. News overnight that German Chancellor Angela Merkel’s government is preparing for all Brexit scenarios, including a no-deal, weighed on sentiment on Thursday.
There are no macroeconomic events scheduled in the UK for this Friday.
From a technical perspective, the USD/GBP pair is currently trading at 1.2997. We continue to expect support to hold on moves approaching 1.2945 while now any upward push higher will likely meet resistance around 1.3029.
The Australia Dollar traded within its weekly range on Thursday, moving within 0.7162 and 0.7210 as the domestic news came in thick and fast. Opening this morning at the lower end of the range at 0.7159.
The Aussie was initially buoyed by a positive trade balance reading which saw exports increase their margin over imports. The latest figure was surprisingly higher than expected and saw the Aussie break through 0.72. These gains, however, were quickly unwound after ANZ, and then CBA announced they’d follow Westpac and increase their mortgage rates. The market reacted poorly to the news and plummeted to 0.7165 on the implications of the rise, despite the RBA’s lack of concern for small rate movements.
Moving into Friday, the Aussie now turns to the Headlines to hear from President Trump on trade. Markets will also keep a close eye on US employment figures for direction.
The New Zealand Dollar has managed to recoup early losses from the week where we saw the pair touch a multi-year low of 0.6530 vs the Greenback. During Asian trade on Thursday, the Kiwi momentarily pushed through the psychological resistance level of 66c touching 0.6616 before a pullback down to 0.6575 during the early European session. With little in the way of local data the Kiwi has moved within quite a tight range of 60 pips and at the time of writing the pair is sitting at 0.6590.
The Reserve Bank of New Zealand Governor Adrian Orr delivered a speech titled "Geopolitics, New Zealand and the Winds of Change" at a national conference co-hosted by the Financial Services Council and Workplace Savings NZ, in Auckland.
On the technical front, the NZD/USD sees immediate resistance up at 0.6615 followed by 0.6660, with support sitting at 0.6570 and 0.6530.
- USD/CAD: 1.3114 - 1.3201 ▼
- CAD/EUR: 0.6533 - 0.6567 ▼
- CAD/GBP: 0.5848 - 0.5900 ▲
- CAD/AUD: 1.0572 - 1.0666 ▲
- CAD/NZD: 1.1532 - 1.1579 ▲