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Canada grabs spotlight ahead of Bank of Canada rate decision

Posted on: September 05, 2017

After all the action to close out last week, it has been a predictably slow start for the G10 ahead of some key risk events later in the week. A disappointing US Non-Farms report on Friday, especially in the wage growth segment, saw USDCAD push right through the 1.2414 multi-year support. Tomorrow the Bank of Canada announces their September rate decision. The market is pricing in a 48% chance of a hike, or about 12 bps, with two hikes priced in before April 2018. Many people were caught flatfooted on Friday which meant we saw some wild swings in interest rate spreads. The desk view is if the goal was to bring Canadian rates back to the 1% level seen before the oil price shock, why wait until October? While Poloz may have preferred to set up the move a little more, the data certainly points one way.

From a chart perspective, not a lot of support down here in USDCAD. The low from Friday of 1.2341 is the first level, with barriers around 1.2300 close behind. We have seen initial resistance around 1.2430/40. Two big events (Bank of Canada on Wednesday and Canadian Non-Farm Payrolls on Friday) along with the usual drags against oil and the crosses mean the pair could see some big moves.

While the Bank of Canada will certainly hold the floor tomorrow, the marquee event of the week for the G10 will be the ECB on Thursday. After EURUSD enjoyed a nice run above 1.2000, rumors of delays in the modifications to QE to the December meeting have soured the tone a little bit, with EURUSD jockeying around 1.1900. Mix in the plentiful US Fed speakers and the mercurial behavior of North Korea and you have all the ingredients for a busy week ahead!

  • Friday's NA 1.2341 - 1.2448
  • Asia 1.2389 - 1.2418
  • London 1.2368 - 1.2410

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