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Wilkins boosts CAD; Oh Canada!

Posted on: June 13, 2017

Canada’s in the spotlight after surprisingly hawkish comments on Monday from Bank of Canada’s Senior Deputy Governor Carolyn Wilkins. USD/CAD responded accordingly, dropping nearly 200bps ahead of the long awaited FOMC rate decision on Wednesday. Poloz was on CBC this morning echoing a lot of what Wilkins said yesterday, this is undoubtedly the first time the BoC has been hawkish in a while. Oil prices rebounded after falling more than 4% last week.

Wilkins noted that the BoC will assess whether “all of the considerable monetary policy stimulus in place is still required”. Market participants took these comments as an indication that Canada’s central bank may be inclined to hike rates from the current floor of 0.5%.

As of EOD Friday, the probability of a .5bp hike was roughly 30% priced in on December 6th. Today, the rate hike is currently 63% priced in, with a slightly higher bias towards a .75bp hike. While these numbers may be surprising it is important to appreciate that recent economic data has shown the Canadian economy is indeed growing at an optimistic rate, with particular strengths in the labour market through job creation and participation. This is important news given the fact that a large portion of employment for those in Canada have been dictated by the cyclical nature of the energy sector.

Wilkins had also commented that the adjustment to low oil prices is mostly behind us. Key support to watch in USD/CAD is 1.3220/30 at the bottom of the trendline, expect lots of stops down there, with new short term resistance around the pivot of 1.3320/30.

The speech by Wilkins and the market reaction could be premature if oil loses the current level of stability, and the looming concern of a negative NAFTA renegotiation by the end of the year could still provide significant headwinds both in the medium and long term. WTI is currently $46 after a forecast of lower inventories in the US as well as Saudi Arabia reducing the volumes of exports in Asian markets. Geopolitical risk is still on the table with the recent friction between Qatar and neighboring Arab nations.

  • Yesterday’s NA Range 1.3320 -1.3470
  • Asia Range 1.3274 – 1.3325
  • London Range 1.3246 – 1.3291

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