It is Bank of Canada decision day. The BoC monetary policy statement, Monetary Policy Report and Governor Poloz’s press conference are on tap for this morning. It is also decision day for Canadian dollar traders. They will need to decide if the latest BoC outlook means they should buy or sell the currency.
The BoC predicted that domestic growth would rebound in the second half of 2019 when it was faced with weak economic data in the early part of this year. It was correct. Canada has seen a succession of better-than-expected economic reports. The Manufacturing Purchasing Managers Index was better than expected, the Merchandise Trade balance posted a surplus, and job growth has been strong. In fact, the loss of 2,200 jobs in June was only the second monthly decline in ten months. Yesterday, Housing Starts jumped 24.4%.
The BoC policy statement is expected to be neutral. It will acknowledge the improving economic data while noting ongoing global growth concerns stemming from the US/China trade dispute. Also, the central bank is widely expected to upgrade its domestic economic growth forecasts.
The BoC is likely to ensure the statement and MPR are neutral enough to avoid sparking a fresh wave of Canadian dollar buying.
Oil prices have continued to rebound. Yesterday, API data showed U.S. crude inventories dropped 8.1 million barrels in the week ending July 5. West Texas Intermediate oil jumped to $59.28 U.S./barrel overnight after touching $57.40/b, yesterday. Additional support stems from supply disruption concerns due to elevated U.S./Iran tensions and the Organization of the Petroleum Exporting Countries and Russia decision to extend production cuts until March 2020.
The Bank of Canada meeting isn’t the only game in town today. Fed Chair Jerome Powell’s Semi-annual Monetary Policy Report to Congress before the House Financial Services Committee begins at 10 a.m. EDT.
The U.S. dollar climbed steadily in recent days in anticipation that Powell may not be as dovish as previously expected. Friday’s stronger-than-expected U.S. employment report served to reduce the urgency for aggressive interest rate cuts. The jobs data didn’t do anything to diminish expectations that the Fed Funds range will be trimmed to 2.00-2.25%, however, it reduced the urgency for follow-up cuts.
Elsewhere, the British pound bounced off a two-year low and climbed from $1.2440 yesterday to $1.2487 overnight. Gains were limited due to increasing fears that the U.K. will crash out of the European Union on October 31, without a deal.
The Federal Open Market Committee meeting minutes from the June 19 meeting will be released this afternoon. However, Powell’s testimony will limit their impact on FX markets.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
