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Canadian housing beats expectations, markets absorb Central Bank statements

Posted on: July 13, 2017

Banner day for CAD yesterday, as a relatively hawkish statement from the Bank of Canada to go along with the 25 basis point interest rate hike saw CAD make new highs (nearly to the 79¢ mark) against the USD, and gain ground against its G10 counterparts. Comments around the output gap closing before the end of the year caused significant compression in 2 year spreads and some big players to cut CAD shorts. Poloz cited the Canadian economy as being robust, which has led to a significant amount of economic slack dispersing. The BoC is still cognizant of the “unknowns”, that is, uncertain outcomes from US trade policy that will have a negative impact on trade and investment decisions, which will further play a downside risk to any future rate hikes. A large obstacle before the end of the year is the NAFTA renegotiation, with talks to begin in late August. Tariffs will be the focal point of the discussion, and any hard-ball tactics could prove for a tough negotiation that would provide a win-win-win situation for all three counter-parties.

Yellen added to the USD dovish theme in her first day of testimony with comments about the uncertainty of the Fed inflation forecast, mentioning that inflation remains consistently below target. In reaction, USDJPY retreated from recent highs. Conversely, US equity markets rallied with the Dow reaching an all-time high and close. Case Shiller price-earnings ratio, an index used for US equity market valuations, remains at a high of 29.93x.

Overnight strong Chinese data pushed AUD higher against the crosses.

On the data front, the Canadian New Housing Price Index came in higher than expected which should help the Bank of Canada's inflation argument. Without any surprise, Toronto and Vancouver were the largest contributors rising 1.1% and 2.2%, respectively. US CPI and Retail Sales loom tomorrow as the last notable North American prints of the week.

  • Yesterday's NA 1.2681 - 1.2939
  • Asia 1.2725 - 1.2765
  • London 1.2721 - 1.2771

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