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Poloz reaffirms tightening bias as CAD gains ground

Posted on: June 28, 2017

The Loonie is the big mover overnight as an interview with Governor Poloz revealed that he is still bullish on the Canadian economy despite low oil prices. He also did nothing to take the July meeting off the table, saying the Bank of Canada needs to consider the whole situation now that the excess capacity in the economy is being steadily used up. The odds of a July rate hike increased to 65% this morning after sitting around 35% on Monday. While my bias is still for a fall increase, oil price stabilization and strong employment data next week may be enough to spark a July hike.

The Euro is also putting on a good show for Sintra watchers, gaining significant ground thanks to perceived hawkish comments from Draghi yesterday on the transitory nature of headwinds to inflation and more accommodative policy as the recovery continues. That would be great, except the ECB announced they did not mean for the comments to be interpreted as hawkish which caused EURUSD to slice 75 points out of the rally overnight before bouncing back a little.

On the charts USDCAD probed below 1.3100 briefly early this morning. We still have the Sintra panel discussion later this morning with Poloz/Draghi/Carney/Kurdoa and the EIA crude inventory report at 8:30am which could cause some waves. Between oil inventory numbers and GDP in the US and Canada still to come this week, lots of potential headline trading remains. Technically speaking, the next support sits around 1.3040/50 with the key level of 1.2970 lurking on the horizon. A convincing break through this level could see USDCAD pick up steam towards a 1.28 handle very quickly as the market blows through stops perched below. On the top-side strong resistance around 1.3340 should keep a lid on things for the time being.

  • Yesterday’s NA Range 1.3148– 1.3219
  • Asia Overnight Range 1.3129 – 1.3199
  • London Overnight Range 1.3076– 1.3158

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