– US Treasury yields hovering near recent lows.
– BoC expected to deliver a hawkish hold.
– US dollar opens narrowly mixed compared to the close.
USDCAD: open 1.3578-82, overnight range 1.3558-1.3595, close 1.3593, WTI $71.83, Gold, $2022.64
The Canadian dollar is wandering aimlessly inside yesterday’s trading range. Traders are hoping for some directional insight from the Bank of Canada’s monetary policy statement that is released at 10:00 am.
They don’t expect much. The BoC is very likely going to leave interest rates unchanged at 5.0% after a series of economic data showed that economic growth was nearly non-existent, and inflation was trending lower. Many economists are predicting that the BoC will be cutting rates beginning in June. BoC officials will want to push back against that notion so expect a hawkish statement full of warnings that interest rates may still rise further.
There is no press conference following the meeting, which leaves Deputy Governor Toni Granville to defend the decision when he delivers a speech on Thursday.
The Canadian dollar is not seeing many ill effects from the nearly 10% plunge in West Texas Intermediate oil prices since November 30. That’s the day that OPEC and Russia announced plans to reduce crude production by a total of 2.3 million barrels per day beginning January 1. The anticipated jump in prices failed to materialize as rising US production and inventories along with weak economic growth from China caused bullish oil traders to unwind positions.
Today’s ADP employment change data (forecast 130,000) will reinforce the view if the results are at or below the estimates. Even so, since the ADP data is a poor gauge for nonfarm payrolls results, it will temper the reaction to the news.
EURUSD drifted lower in a 1.0775-1.0882 band with the single currency ignoring Euro area Retail Sales data which inched up 0.1% y/y in October.
GBPUSD is sitting near the bottom of its 1.2581-1.2614 range, in part due to weaker than expected data. UK Construction PMI was 45.5 in November, below the forecast of 46.3 and October’s 45.6 result. Even so, the price action is just noise ahead of Friday’s US NFP report.
USDJPY bounced from its session low of 146.90 in Asia to just 147.52 in early NY, coinciding with the tiny increase in Treasury yields. Sentiment is bearish due to expectations for lower US rates and the prospect of BoJ tightening next year.
AUDUSD traded negatively in a 0.6569-0.6627 range. Q4 GDP rose 0.2% q/q compared to expectations for a 0.4% increase. The results increase the odds that Australian interest rates have peaked.