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The Loonie rallies as the BoC continues to be the least dovish central bank in the G10

CAD - Canadian Dollar

It was widely anticipated that the BoC wouldn’t make changes in its overnight rate target and it maintained its overnight rate at 1.75 percent. However, despite the BoC mentioning concerns such as the US-China trade conflict, the contraction of world trade, and weakness of business investment, its message disappointed the dovish views such as those from Europe and most market participants in the U.S. who are expecting looser policies in the next few days, as well as in the G10 economies. In general, the BoC said the degree of monetary policy remains appropriate for now.

The key points that BoC mentioned in its note yesterday that did not support dovish sentiments included the following:
• The United States has moderated but remains robust, supported by consumer and government spending;
• In Canada, growth in the second quarter was strong and exceeded the BoC’s July expectation;
• The rebound in Canada was driven by stronger energy production and robust export growth;
• Housing activity in Canada has regained strength more quickly than expected as resales and housing starts catch up to underlying demand, supported by lower mortgage rates;
• Wages have picked up further in Canada; and
• Inflation is at the 2 percent target in Canada.

The USD/CAD fell from 1.3328 to 1.3191 when the BoC released its overnight rate yesterday, representing a 1.03 percent fall (stronger Loonie) in two days.

Key Movers

In the U.K., parliament rejected Boris Johnson's call for an early general election on Oct. 15th, after passing a bill that would force the PM to ask the EU to delay Brexit by three months to Jan. 31st if he can't secure a deal or persuade MPs to leave the bloc without one. The next step is the legislation heading to the House of Lords. The GBP/USD pair continues moving in a bullish manner, and the following resistance level is set around 1.2433.

The global equity markets have continued to rise following the positive price action from North America. There were several drivers to be bullish on stocks and commodity currencies (Loonie, Kiwi, and the Aussie dollar); such as Hong Kong's Carrie Lam pulling the extradition bill; reduced chances of a no-deal Brexit; and the Bank of Japan Kataoka's suggestion that the BOJ should take pre-emptive action on rates. The icing on the cake is the re-pricing of the Fed after yesterday's weak ISM manufacturing in the U.S. and China's cabinet signalling that a reduction in the amount of funds banks have to hold in reserve, which adds to the positive mood in the capital markets.

On the flip side, the Bank of Canada disappointed the doves by saying a degree of monetary policy remains appropriate for now, but they opened the door slightly to a future cut, saying they will continue to pay attention to global developments (i.e. trade conflict) and the impact on the outlook for Canadian growth and inflation.

European Central Bank presidential nominee Christine Lagarde signaled she would follow Draghi's example in finding ways to keep monetary policy exceptionally loose.

In the U.S. the ADP non-farm employment change came in at 195 k from July to August, versus the expectation for 148 k, according to the August ADP National Employment Report released this morning. However, the U.S. dollar index continues in a free fall, with a contraction of 0.28 percent at the time of this writing.

Expected Ranges

USD/CAD: 1.3173 - 1.3240 ▲

EUR/CAD: 1.4595 - 1.4646 ▲

GBP/CAD: 1.6285 - 1.6362 ▲

AUD/CAD: 0.8994 - 0.9047 ▲

NZD/CAD: 0.8410 - 0.8480 ▲