The Canadian dollar remains on the defensive. Yesterday’s Bank of Canada monetary policy statement did not offer any support.
The BoC delivered as expected. It left interest rates and the Quantitative Easing program unchanged at 0.25% and $2 billion per week, respectively. The statement highlighted economic growth risks from supply chain disruptions and rising COVID-19 cases.
The BoC acknowledged that Q2 Gross Domestic Product was weaker than what it predicted in July but downplayed the result. Members said it was due to supply chain disruptions, especially in the auto sector, and noted that domestic demand was growing at more than 3%.
The statement noted that the "Canadian economy still has considerable excess capacity and interest rates will remain at current levels until the slack is absorbed," which it said will happen in the second half of 2022.
Traders shifted their focus to Wall Street, where global growth concerns weighed on prices.
The Federal Reserve’s Beige Book stocked growth concerns. It said, "Economic growth downshifted slightly to a moderate pace in early July through August." It suggested the slowdown was due to rising cases of COVID variants which led to a pullback in dining and travel, in addition to supply constraints.
China's inflation data underscored the risk to manufacturing prices. August Producer Price Index surged 9.5%, m/m, a 13-year peak, and well above the forecast of 9.0%. However, the news was tempered by a dip in Consumer Price Index to 0.8% from 1.0% in July.
Heavy-handed Chinese government interference in the business sector may be another source of global concerns. Chinese authorities repeated warnings of illegal behaviour in the ride-hailing industry, while banning private tutors from offering online courses.
Traders are also looking at property developer Evergrande which is struggling with $300 billion of debt.
EUR/USD consolidated recent losses in a $1.1812-$1.1839 range overnight. The European Central Bank (ECB) meeting is the key focus today. Analysts expect interest rates to be left unchanged but are undecided about changes to the PEPP program. There is plenty of speculation about upgraded growth forecasts as well.
GBP/USD rallied from a low of $1.3725 yesterday to $1.3830 today, supported by comments from Bank of England officials. Governor Andrew Bailey admitted that the Monetary Policy Committee (MPC) was split 4-4 as to whether the minimum conditions had been met to raise interest rates. Bailey said that he thinks they have been met, but they are not enough to trigger a hike.
U.S. weekly jobless claims are expected to be 335,000.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
