The Canadian dollar is trading defensively in early New York markets, as traders continue to assess the implications of the Bank of Canada (BoC) policy statement and U.S. Federal Reserve Chair Jerome Powell’s Congressional testimony.
The BoC surprised markets, somewhat. It left interest rates unchanged, and reduced quantitative easing purchases to $2 billion per week, from $3 billion per week. No surprises there. However, traders were caught a little off-guard when the BoC downgraded 2021 GDP growth to 6.0% from April’s forecast of 6.5%.
The Canadian dollar is undermined by a somewhat cautious Monetary Policy Report, due to third wave COVID-19 restrictions. The Canadian dollar is also pressured by falling oil prices. WTI fell from $75.36/barrel yesterday to $71.71/b today.
For his part, Powell stuck to his guns during day one of his Congressional testimony. He pushed back against calls for earlier than expected tightening, repeating "reaching the standard of substantial further progress is still a ways off." He admitted that inflation had increased "notably," but dismissed concerns because the increase was due to base effects which were transitory.
The major Asian equity indexes closed on a mixed note. Japan’s Nikkei 225 and Australia’s ASX 200 closed with losses, while better than expected China Gross Domestic Product and Retail Sales reports lifted the major Chinese indexes. European bourses are in negative territory, led by a 0.66% drop in Germany’s DAX index, while S&P 500 futures are posting small losses. Oil prices are down, and gold is unchanged from yesterday’s New York closing level.
EUR/USD climbed from $1.1790 at yesterdays New York open and peaked at 1.1850 just before New York opened today, then dipped to $1.1827 in early trading. EUR/USD needs to break above $1.1880 to avoid a re-test of the $1.1790 area.
GBP/USD bounced erratically in a $1.3815-$1.3898 range and is near the top of that band in early New York trading. U.K. employment data was better than expected which underpinned prices.
There are plenty of U.S. economic reports on tap, including Jobless Claims, Industrial Production, capacity Utilization, Philadelphia Fed Manufacturing Index, and NAHB Housing index. It is also day two of Powell’s congressional testimony.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
