It is decision day for the Bank of Canada. Unfortunately, the decision may not help the beleaguered Canadian dollar which is on the brink of a freefall towards the USD/CAD level of $1.3550.
The Bank of Canada is widely expected to leave its benchmark overnight rate unchanged at 1.75%. The very weak Q4 Gross Domestic Product data released last Friday pretty much guaranteed that outcome. In addition, since their previous meeting on January 9, the Federal Reserve, European Central Bank, Bank of Japan and Reserve Bank of Australia delivered dovish monetary policy statements. These central banks cited concerns about global growth, trade issues and political uncertainty for their cautious outlook. The BoC is likely to do the same, despite the marked improvement in oil prices.
The Organization for Economic Cooperation and Development (OECD) released an interim outlook today. It downgraded its global growth forecasts for 2019 to 3.3% from 3.5% and 2020 to 3.4% from 3.5%. The OECD said the global economy is slowing and significant risks persist, specifically naming Europe as a weaker than expected area, and blamed high policy uncertainty, ongoing trade tensions and a further erosion of business and consumer confidence for the move.
Overnight, the U.S. dollar traded higher against the majors, led by a 0.80% gain against the Australian dollar. EUR/USD, USD/JPY and USD/CHF opened unchanged from Tuesday’s Toronto closing levels.
The Australian dollar got walloped after Q4 GDP missed forecasts, rising 2.3%, compared to a 2.8% y/y gain, previously. Macquarie Bank reacted to the news by forecasting a 0.50% interest rate cut in May or August.
A Bank of Japan official opined about the need for additional stimulus which raised concerns for a dovish policy statement from the BoJ on March 15.
The U.S. dollar is supported by ongoing outperformance of the American economy compared to the rest of the G-10 countries. The Fed is dovish but still expected to raise interest rates at least once in 2019. None of the other countries are in the same position. It is also being supported because of a lack of details concerning the U.S./China trade negotiations. Some traders equate the lack of details to a lack of progress.
The British pound recovered half of its overnight losses in during this morning's early Toronto trading session. Prices were under pressure because Prime Minister Theresa May’s team hasn’t been able to resolve the Irish border backstop issue and time is running out for a deal.
In the U.S., the monthly ADP employment data showed a gain of 183,000 jobs in February, which was close enough to the 189,000 forecasts to be a non-factor.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
