The Loonie falls to new lows after an unexpectedly dovish BoC.
Thursday 23 January, 2020
Daily Currency UpdateCAD - Canadian DollarBoC Governor Poloz left the door open for a rate cut after the BoC left its key rate unchanged at 1.75 percent. As of today, market participants are now pricing a 58 percent probability of at least one cut in June this year and a 74 percent chance of a cut in December 2020. In yesterday's trading session, the Loonie reached its weakest level since late December after the BoC's dovish tone prospected policy easing in the face of a slowing economy. Chairman Stephen Poloz reiterated that rates currently remain appropriate, though that may change depending on how economy evolves. He added, "The interest rate that we have today remains appropriate for the conditions that we see.” However, he said that there is an emerging downside risk to the outlook for inflation. Poloz also confirmed the economy would carry excess capacity throughout the short-term.
Key MoversIn the FX world, the mood is deteriorating. Safe-haven currencies are being favoured, which usually does not help Asian currencies such as the Yuan. One of the reasons for this is the ongoing concern about the coronavirus. Just a few minutes ago, Singapore confirmed the first case of the virus as the outbreak grows. The offshore Chinese Yuan has fallen 0.28 percent versus the Greenback this morning. A few minutes ago, the ECB left their refinancing rate unchanged at 0 percent, and their deposit facility rate at -0.5 percent, as expected. It was one of the least exciting ECB policy meetings in more than five years, and it was visualized through the options market - a sophisticated financial tool in the capital markets. Remarks from Lagarde are usually very balanced, but she said that the ECB would "be over when it is over", sending the Euro to a new low (1.1053 intraday low) not reached since December 2019. The Euro initially spiked, capturing many buyers on the back foot - it had reached 1.1108 initially right after Lagarde opened her press conference, but all those gains are gone. Lagarde refused to reveal her preference for an inflation strategy and pointed to a moderate increase in inflation. She also did not want to make comments on the Riksbank in Sweden, which wants to reverse negative rates. The last piece of information that might not send the Euro even lower is Lagarde's comments that the ECB will take a look at the adverse side effects of negative rates.
- USD/CAD: 1.3121 - 1.3172 ▼
- EUR/CAD: 1.4513 - 1.4532 ▼
- GBP/CAD: 1.7215 - 1.7307 ▼
- AUD/CAD: 0.8994 - 0.9015 ▼
- NZD/CAD: 0.8654 - 0.8667 ▼