USD/CAD - Canadian Dollar Soars After Hawkish BoC Statement

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The Canadian dollar soared yesterday, following a surprisingly hawkish tone to the Bank of Canada (BoC) monetary policy statement. The BoC left interest rates unchanged, as expected but it had a somewhat optimistic economic outlook. The statement said, "there is nascent evidence that the global economy is stabilizing, with growth still expected to edge higher over the next couple of years."

The bank also said the economy was operating near capacity and that inflation would increase in the coming months. That forecast is hardly a recipe for a rate cut anytime soon. USD/CAD plunged from $1.3275 to $1.3179 and then spent the overnight session in a $1.3179-$1.3202 range.

Traders are waiting patiently for Bank of Canada Deputy Governor Timothy Lane’s speech this morning, in Ottawa. He is expected to clarify the bank's outlook and may downplay the optimistic outlook and focus on the economic risks. The statement pointed out that "ongoing trade conflicts and related uncertainty are still weighing on global economic activity and remain the biggest source of risk to the outlook." If he does, USD/CAD may recoup some of its losses.

Once again, the British pound outperformed the rest of the major G-10 currencies. GBP/USD rose from $1.3103 to $1.3146 as previously bearish traders unwind short positions. Price support is from expectations of a Conservative party majority and Prime Minister Boris Johnson’s plans to cut taxes. 

EUR/USD is reluctantly pushing higher, due to broad U.S. dollar weakness. The single currency is struggling to obtain upside momentum because of a series of weak euro-zone and German economic reports. Retail Sales fell 0.6% in October, which was even worse than Septembers 0.2% drop. Gross Domestic Product was 1,2% y/y as forecast.

USD/JPY traders appeared to ignore news of another Japanese government fiscal stimulus plan. Prime Minister Shinzo Abe announced plans for $120 billion in stimulus measures which are expected to boost infrastructure spending and export incentives. USD/JPY traded in a narrow 108.79-108.96 range. Topside gains were limited due to soft U.S. Treasury yields.

The meeting in Vienna of the Organization of the Petroleum Exporting Countries is still in progress. The cartel and Russia are expected to announce another 400,000 barrels per day in production cuts and extend the current program until the end of March. Those expectations, coupled with a 4.85-million-barrel drop in U.S. crude inventories underpinned prices West Texas Intermediate oil rose from $58.14 to $58.82 U.S. in Toronto trading today.

NZD/USD was underpinned by news that the Reserve Bank of New Zealand was increasing the capital requirements for banks. U.S./China trade concerns weighed on AUD/USD.

Today’s U.S. data includes weekly Jobless Claims, Trade balance, and Factory Orders. Canada releases Ivey Purchasing Managers Index and Merchandise trade.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates