The Canadian dollar lost ground yesterday when the Bank of Canada's quarterly Business Outlook Survey (BOS) was released. Many economists were expecting a weak report, and that was what was delivered. Bank of Canada officials like to point out that the Canadian economy is operating "at or near" full capacity.” The April BOS survey suggests that is no longer the case. The survey showed a steep drop in capacity pressures to a two-year low. Survey participants also downgraded their inflation outlook. For many analysts, this report is a good indicator of the Bank of Canada’s intentions. They expect the BoC will stick to its dovish policy outlook.
Dovish central banks were a common theme overnight. AUD/USD came under pressure after the Reserve Bank of Australia minutes of the April 1 meeting showed that interest rate cuts were discussed. Prices were already under pressure from rate cut speculation and the minutes merely confirmed that scenario. Australia’s Westpac Bank is predicting a rate cut in August.
The Reserve Bank of New Zealand got into the act when Governor Adrian Orr confirmed that the bank’s easing bias was still in place because of the risk of lower than expected inflation in the first quarter and offshore influences.
European Central Bank (ECB) officials got into the act as well. ECB "sources," told Reuters that there was a "significant majority" of policymakers who were not convinced that an economic rebound would occur in the second half. Some were even skeptical about the accuracy of their forecasting models because the results were continually revised lower. That sentiment took the "bloom off the rose" from the better than expected German and euro-zone data. The German ZEW Economic Sentiment survey was 3.1 in April compared to -3.6 in March. The euro-zone ZEW Economic survey was 4.5, well above the march result of -2.5.
GBP/USD couldn’t get any traction from the U.K. employment report. The results were in line with forecasts and were quickly forgotten. GBP/USD continues to consolidate in a $1.3050-$1.3150 while traders seek fresh direction from Brexit developments.
FX markets are hoping to find some direction from Wall Street price action. Earnings season has started on a mixed note, but traders are looking for the next batch of Corporate earnings to boost prices which in turn will improve global risk sentiment.
The Canadian dollar trading range since the beginning of March continues to contain the price action. Concerns about a dovish Bank of Canada bias are offset by steady to firm oil prices. The currency is vulnerable to a weaker than expected Manufacturing shipments report today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
