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Participants divided going into BoC rate decision

Posted on: September 06, 2017

Today is the big day, the first Bank of Canada coin flip decision in a long time. The probability of a hike came down a bit overnight, currently sitting around 40% as participants talk themselves off the ledge. The arguments for hiking today are strong based on the data and the comments by Poloz that the insurance cuts against the oil shock have done their job. However, he may be hesitant to "surprise" the market and opt for a October hike instead as history points to a move in rates without a speech before at only 11%.

If the BoC "shocks" the market and raises rates this morning, expect USDCAD to push through 1.2330/40 towards a 1.22 handle very quickly. If the BoC does not hike rates, expect USDCAD to test higher on a knee jerk, but watch the language of the statement. If the statement is not dovish, it may be a good opportunity to fade rallies as the USD continues to struggle across the board.

Overnight, Australia GDP disappointed which has AUD and NZD lagging the rest of the pack. The RBA continues to remain economically hawkish and rate dovish at the same time, and there is caution around record high household leverage. This morning, both Canadian and US trade deficits came in narrower than expected. The EUR and GBP continue to outperform the USD after the shellacking the dollar took yesterday at the hands of mega doves Brainard and Kashkari. The risk with the ECB meeting tomorrow has largely kept the EUR in a tight range as participants await fresh forecasts and any tapering details.

  • Yesterday's NA 1.2336 - 1.2374
  • Asia 1.2365 - 1.2398
  • London 1.2373 - 1.2399

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