Summary:
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Bank of Canada keep rates on hold at 1.5% as expected
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Elevated trade tensions remain a key risk
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GBPCAD in focus
The September meeting of the Bank of Canada had been seen as a potentially big event several weeks ago, but some recent soft data such as the GDP miss had lowered expectations for any move coming into it and this afternoon this was confirmed with the base rate held steady at 1.5%. There’s no press conference today although deputy governor Wilkins is speaking tomorrow and this could provide some insight into the chances of a move next month, with the market-implied probabilities for an October hike still seen as odds-on. For now the most we have to go on is the accompanying statement with selected excerpts shown below (emphasis is ours):
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Core measures of inflation remain firmly around 2%, consistent with an economy that has been operating near capacity for some time.
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The rotation of demand towards business investment and exports is proceeding
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Closely monitoring the course of NAFTA negotiations and other trade policy developments, and their impact on the inflation outlook
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Will continue to take a gradual approach, guided by incoming data
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Recent data reinforce the assessment that higher interest rates will be warranted to achieve the inflation target
Overall the message appears little changed and supportive of the markets view that an October hike is on. In particular the last comment could be seem to indicate that the bank will look to hike next month on the proviso that data is pretty solid. There are two employment releases before then which will likely alongside CPI and retail sales numbers determine whether or not the economic data gives anything to move them away from what appears to be a base case of a hike. The first of these labour market figures is due out this Friday with 5.1k expected for the monthly employment change. In addition to the comments on data, the progress or lack of, regarding NAFTA negotiations will likely also play a role on future monetary policy.
The CAD heatmap reveals that the currency is falling against all of its peers other than the JPY with the GBP the biggest beneficiary after the pound jumped on some seemingly positive Brexit news. Source: xStation
We earlier looked at the USDCAD which trades close to a 7-week high, following the latest trade data from North America, so let’s not look at another pair. Seeing as it is the largest riser on the day the GBPCAD cross is of interest. Looking more closely at this market we can see that the price has reached a 1-month high today and is close to retesting the prior swing level around 1.7109. A daily close above there would open up the possibility of further gains with 1.7320 and 1.7660 higher potential levels of interest.
Should this level prove a hurdle too far then the recent lows around 1.6595 remain an important support. In addition the 8 and 21 EMAs have formed a bullish cross and we can observe that going back to the start of the year this signal has preceded large moves. There have been 4 previous crosses with 3 of them seeing moves of around 1000 pips with the bullish cross in June the least successful - although this still saw a move of around 400 pips shortly after.
GBPCAD has moved to a 1-month high today and the recent bullish cross in the 8 and 21 EMAs could be seen as a harbinger of further gains if previous instance are followed. Source: xStation
