- BoC expected to hike by 25 bps to 2.75%
- Fed expected to leave rates unchanged at 4.00%
- US dollar trading with a mild bid
USDCAD open (6:00 am): 1.4061, overnight range 1.4041-1.4069, close 1.4011, WTI $101.10, Gold $4,054.16.
The Canadian dollar is on the defensive this morning as traders square up ahead of a central bank double-header, with the Bank of Canada this morning and the FOMC this afternoon. The irony is hard to miss: the Fed ought to raise rates and won’t, while the BoC ought to stand pat and almost certainly will hike.
Markets are braced for a 25-basis-point BoC rate increase that would lift the overnight rate to 2.75%. A good many economists and analysts read Governor Tiff Macklem’s recent remarks as making the case for tightening, nominally to get ahead of an oil-fuelled bout of inflation.
The trouble is that the Bank’s favourite gauges of core inflation don’t back him up. CPI-trim came in at 1.8% in September and CPI-median at 1.9%, both sitting under the 2% midpoint of the inflation target.
Its FOMC day and markets are sidelined ahead of the meeting. Traders now put the odds of the Fed holding its benchmark rate steady today at 90.6%, up from just 29.1% a month ago. A swing that size tells you even the “smartest guys in the room” are having trouble reading the economy, a job made harder by an erratic administration that runs policy through executive orders and Truth Social posts.
According to the Wall Street Journal, Washington has told several Gulf Arab states to get ready for a “short, intense military campaign” once the US midterms are out of the way. Trump worries that striking before November 3 would hurt his party at the polls by drawing attention to how badly the war has been handled, a venture the Pentagon reckons has already cost $47 billion.
The report put a floor under crude, and WTI climbed from $99.76 to $102.24.
Asian bourses ended flat to firmer. Japan’s Topix and Australia’s ASX 200 closed unchanged, while Hong Kong’s Hang Seng added 0.23%.
At 7:05 am, the French CAC 40 is down 0.13% and the German DAX is little changed. The UK FTSE 100 has lost 0.27%%. S&P 500 futures are 0.13% higher, the US 10-year yields 5.003%, and the DXY sits at 102.41.
EURUSD slipped within a 1.1113-1.1132 band and is heading for the weakest October showing of any major, weighed down by elevated energy costs and nerves over French public finances. Traders are waiting on today’s FOMC decision before turning their attention to Thursday’s ECB meeting.
GBPUSD eased in a 1.3272-1.3312 range and is a shade weaker at 1.3287 ahead of Chancellor Healey’s first Budget at 8:30 am ET, which is set to raise bank taxes and boost defence spending. The prospect of a hawkish Fed hold is adding to the pressure on sterling.
USDJPY sagged toward the bottom of a 157.66-158.04 range as Japanese officials keep the threat of intervention in play. The BoJ meets Friday and is expected to hold while signaling that a December move is likely.
AUDUSD whipsawed through a 0.7023-0.7055 range, hitting its high in Asia before sliding to the low into the New York open. The early rally came courtesy of a hotter-than-forecast inflation print, with Q3 CPI jumping 1.3% q/q from 0.6%. Governor Bullock said the board will debate next week whether four hikes this year are enough.
