• Bank of Canada poised to cut rates by 50 bps.
• IMF predicts Canada GDP growth to outpace G-7 in 2025.
• US dollar opens slightly higher vs majors except CAD and GDP
USDCAD: open 1.3821, overnight range 1.3815-1.3829, close 1.3819, WTI $74.65, Gold, $2750.43
The Canadian dollar traded sideways in an uneventful overnight session as traders awaited the Bank of Canada meeting, where a rate cut is widely expected. The key question on the minds of traders is whether the cut will be 25 bps or 50 bps. While the consensus leans toward 50 bps, around 30% of traders believe a 25 bps cut is more likely.
Those in the 50 bps camp argue that the data shows a weakening economy with rising unemployment that is struggling to keep up with immigration. Additionally, BoC Governor Tiff Macklem hinted a few weeks ago that a significant rate cut might be necessary.
However, his comments came before Fed Chair Jerome Powell indicated that the FOMC is in no rush to cut rates, a stance recently reinforced by various Fed officials. Traders expecting a 25 bps BoC cut highlight these comments, expressing concerns that a 50 bps cut could significantly weaken the Canadian dollar.
The International Monetary Fund (IMF) has a rosy view of the Canadian economy for 2025 and are predicting GDP at 2.4%, substantially higher than 1.3% previously. The predictions should be taken with a grain of salt as the IMF has a poor forecasting record.
EURUSD remained close to its previous close at 1.0800, fluctuating within a narrow range of 1.0792 to 1.0806. The euro faces downward pressure due to the European Central Bank’s dovish outlook, while the US Federal Reserve maintains a steady stance, bolstered by confidence in a US soft landing. Further, the US presidential race is seen as a slight negative for the euro, as Tariff-man Trump continues to lead over Harris.
GBPUSD is trading near the upper end of its 1.2969-1.2992 range, buoyed by a modest boost after the IMF raised the UK’s 2024 growth forecast from 0.7% to 1.1%. However, any significant gains are tempered by the broad demand for the US dollar, especially with the upcoming US presidential election looming.
USDJPY saw a steady rise, moving from 151.02 to 152.027 during New York trading. This upward momentum is attributed to increasing US Treasury yields, with the 10-year yield hitting 4.24%. While expectations of a US soft landing and gradual rate cuts persist, they contrast sharply with the Bank of Japan’s dovish stance, although a rate hike from the BoJ is still anticipated in the future.
AUDUSD traded lower within the 0.6662-0.6692 range, pressured by US dollar strength. On the bright side, downside risks for the Australian dollar may be mitigated as analysts see reduced odds for further rate cuts by the Reserve Bank of Australia in 2024.
US existing home sales reports are due.