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"Will B.O.C increase another rate hike on it's next policy meeting?? ..."
"We're probably going to catch up to our commodity peers.."
Canada’s central bank raised it's key interest rate on Wednesday for the third time in as many months. Though it is unlikely to do so again for some time, argues Michael Taylor.
“With space capacity, slowing growth and well-behaved inflation,
further monetary tightening from here would be a mistake,” the Lombard
Street Research analyst explained in a note to clients on Wednesday.
“By the time of the next scheduled monetary policy meeting on 19th
October we expect that the outlook will be such that the Bank leaves
interest rates on hold,” Mr. Taylor wrote.
The fact that growth of Canada’s economy is already showing signs of
slowing – GDP in the last quarter rose by 0.5%, compared with more than
1% growth in each of the previous two quarters – makes what Mr. Taylor
considers to be a “strong case for unchanged monetary policy.”
While inflation based on the consumer price index [CPI] jumped to
1.8% in July from 1.0% the previous month, he notes that the increase
is still below the Bank’s 2% target rate. He also points out that the
increase was largely due to transitory effects created by the recent
implementation of a Harmonized Sales Tax in Ontario and British
Columbia.
As what the BoC calls an “exceptionally stimulatory policy,” becomes
the Canadian stance in an environment of weak economic growth on the
global level, Mr. Taylor concludes by noting “it is likely that [rates]
will remain on hold well into 2011.”
Here's what other strategists thought of yesterday's rate increase:
The
currency climbed versus all 16 of its most-traded counterparts as the
Bank of Canada lifted its target rate to 1% from 0.75% and investors
sought higher-yielding assets. The bank said “financial conditions in
Canada have tightened modestly but remain exceptionally stimulative.”
“To
us that clearly signals the bank is not done raising rates,” said Blake
Jespersen, director of foreign exchange at Bank of Montreal. “We now
think there’s a fairly decent chance that they raise rates again in
October.”
“I
thought they would express a little more caution this time and they
didn’t,” said David Watt, senior currency strategist at RBC Capital
Markets. “We’re probably going to catch up to our commodity peers to an
extent today.”
Today’s
bank statement “leaves the door open for the Bank of Canada going
forward,” Steve Butler, director of foreign-exchange trading at Scotia
Capital wrote via e-mail. The statement “is clearly not as dovish as
the market expected.” Mr. Jespersen at Bank of Montreal predicted the currency could strengthen toward $1.02. “The
fact that they’re going to continue probably raising rates is going to
be a real stimulus to the Canadian dollar here,” Mr. Jespersen said.
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"USD- Initial Jobless claims come out better than expected.."
"CAD- Housing starts and Trade Balance figures come out weak .."
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Applications for U.S. unemployment
benefits declined more than forecast last week, easing concern
that employers will accelerate firings as the world’s largest
economy cools.
Initial jobless claims dropped by 27,000 to 451,000 in the
week ended Sept. 4, Labor Department figures showed today in
Washington. The total number of people receiving unemployment
insurance was little changed, while those getting extended
payments rose.
“We need to see faster job growth in the private sector to
really generate a robust recovery,” Russell Price, a senior
economist at Ameriprise Financial Inc. in Detroit, said before
the report. “It is going to be a very tepid recovery.”
The New Housing Price Index fell
0.1 per cent in July following a 0.1-per-cent increase in June – the
first decrease in 13 months.
Statistics Canada reports the top contributors to the decrease were Vancouver, London and Greater Sudbury and Thunder Bay, Ont. Prices fell the most in Greater Sudbury and Thunder Bay (down 1.9 per cent), London (1.8) and Windsor, Ont. (1.5). Statscan
blamed the declines partly on the introduction of the Harmonized Sales
Tax, which is not included in the index's calculations. Prices
increased in three of the 21 cities surveyed, with the largest hike
coming in Kitchener–Cambridge–Waterloo, Ont., where they rose 0.6 per
cent as builders increased their prices. Year over year, the index was up 2.9 per cent in July following a 3.3-per-cent increase in June.
Canada’s trade deficit
unexpectedly hit a record as exports such as airplanes and forestry
products buckled, another sign of a slowing economy. The country’s trade deficit grew to $2.7-billion in July from a revised $1.8-billion in June, Statistics Canada said Thursday. The report comes as the economy is cooling in key areas such as housing and hiring. The Bank of Canada acknowledged yesterday that second-quarter growth was weaker than it
had anticipated, and noted the U.S. is set for a more “muted” recovery. Today’s
trade numbers reveal just how much U.S. weakness is hitting Canada.
Exports to the U.S. dropped for the second straight month, causing
overall exports to tumble 0.7 per cent – the fourth drop in six months.
Imports grew 2 per cent.
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| Currency Commentary
EUR, USD, CAD, GBP & JPY
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EUR: The Euro ha ticked higher, yet with mild strength, after better than
expected US initial jobless claims and recovery from 1.2660 support
area visited earlier today, has extended to session high levels above
1.2745, approaching resistance level at 1.2765.
USD: The Initial jobless Claims as released by the Department of Labor for
the week ending on Sept. 4 turned out at 451K, while the Continuing
Jobless Claims printed at 4478K.
The previous print for the
Initial Claims was revised to 478K, and expectations placed the current
one at 470K. Continuing Claims also suffered a revision, this time to
4.480K and expectations focused on a drop to 4445K.
With yesterday's dovish statement via the Fed's Beige Book, it is clear the markets are trading on "short term uncertainties". Any glimmer or sign of hope pertaining to U.S. indicator announcements, investors react and have been buying equities and commodities. Will this trend continue for tomorrow to end off the week?
CAD: Today's CAD data came out less impressive, what has given strength to the CAD, has been the better than expected Initial Jobless claims data from the U.S. The USD/CAD has maintained it's bearish trend..heading into the lower 1.0300 levels. Tomorrow's CAD- Employment rate and net change employment data will be the deciding factor whether the trend heads into the lower 1.0200 levels??
GBP: The Pound has remained practically unchanged trading right above
1.5400, after bouncing from session low at 1.5375, after BoE's released
its decision to leave its Bank Rate on hold at all time low 0.5%.
The
Bank of England has approves to keep its benchmark rate at 0.5% for the
19th consecutive month, as well as to maintain its "Quantitative Easing
program" at GBP200 billion.
JPY: The Dollar has ticked up about 25 pips higher against the Yen reaching
83.90 area, yet trading within the last two day's range, following a
larger than expected decline on US initial jobless claims.
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| Technical Ranges
CAD, USD, EUR, JPY & GBP
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 USD/CAD
Support: 1.0248 Resistance: 1.0391
CAD/JPY
Support: 80.44 Resistance: 81.96
EUR/CAD
Support: 1.3066 Resistance: 1.3194
EUR/USD
Support: 1.2679 Resistance: 1.2823
GBP/USD
Support: 1.5342 Resistance: 1.5529
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| Main USD/CAD data today: |
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1. USD- Initial Jobless Claims & Trade Balance data.
CAD - Housing starts & International Merchandise Trade data.
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