Bank of Canada Sheds Tightening Bias

The loonie struggles after a dovish BoC while the dollar marches higher and the euro falls to its lowest levels this year on further uninspiring data.

Previous Day's Market Highlights

The Canadian dollar lost ground on Wednesday after the Bank of Canada’s latest rate decision. Despite interest rates being kept on hold at 1.75%, the BoC largely shed their bias for higher interest rates, affirming that accommodative monetary policy continues to be warranted and that incoming economic data will be key to the BoC’s evaluation of future rate decisions. By removing all references to bringing rates back to a neutral level, the BoC struck a relatively dovish tone which, combined with a steep downgrade to 2019 growth projections to 1.2%, caused a steep fall in the loonie, which tumbled 0.6% to its worst levels against the dollar since early-January. Some of these losses were however pared after the post-meeting press conference, where Governor Poloz stuck a more upbeat tone than the monetary policy statement, commenting that rates are more likely to increase than decrease should the BoC’s forecasts prove correct. Over the course of the day, the Canadian dollar was 0.4% lower. 
Elsewhere, the dollar continued its advance to hit its highest levels since May 2017 against a basket of peers. The dollar’s advance was a continuation of Tuesday’s trend, rather than an immediate reaction to any economic releases, though did little to help the pound, which meandered in search of direction stemming from Brexit-related headlines. Sterling fell by 0.25% against the dollar, falling below the $1.29 level for the first time since mid-February, and chalking up its 7th straight day of declines. The pound did perform slightly better against the euro, capitalising on weakness sparked by poor eurozone economic data to add 0.35%. German business climate figures fell to 99.2, against a forecast increase to 99.9, giving a further sign that data from the single currency bloc is yet to bottom out and sparking further concerns of a prolonged economic slowdown. The euro struggled across the board, falling 0.6% to its lowest levels against the dollar this year.  
Overnight, the yen has held steady after the Bank of Japan’s latest policy announcement, where rates and monetary policy were kept on hold as expected. The BoJ did however revise their forward guidance, indicating that rates will remain at, or around, their current low levels until Spring 2020 and gave a relatively downbeat assessment of the Japanese economy through the latest set of economic forecasts. In reaction to a sluggish start to the year, the BoJ now forecast growth of just 0.8% this year, followed by a further 2 years around the 1% level. Turning to inflation, the BoJ expect core CPI to remain below their 2% target throughout the forecast horizon, expecting inflation of just 1.6% by the end of 2022. The yen has largely ignored the BoJ meeting, having ticked up by 0.2%, though Governor Kuroda’s press conference this morning may be a source of volatility. 

Elsewhere, equity markets on both sides of the Atlantic struggled. In Europe, the Stoxx 600 fell by 0.2%, while the US benchmark S&P 500 pulled back from a record closing high, falling a shade under 0.25%. Finally, in commodities markets, oil prices slid as a rise in US stockpiles weighed on prices. Global benchmark Brent was 0.1% lower, while US WTI crude settled down by 0.6%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1570 1.1685 1.1512 1.48%
GBP/USD 1.2910 1.3132 1.2887 1.87%
EUR/USD 1.1155 1.1323 1.1140 1.62%
GBP/AUD 1.8400 1.8610 1.8093 2.78%
GBP/NZD 1.9570 1.9620 1.9049 2.91%
GBP/CAD 1.7415 1.7615 1.7314 1.71%

Today's Market Highlights

Data is relatively thin on the ground today, with nothing in the way of releases due from the UK or the eurozone. From the US however, the calendar is busier, with the primary focus set to be March’s durable goods orders figures - a useful leading indicator for future manufacturing production. Expectations are for orders to have increased at 0.8% on a month-on-month basis, a significant rebound from February’s 1.6% decline and a level which would be the highest since December 2018. Of particular focus is likely to be the typically less-volatile core orders figure, which excludes transport. Expectations for core orders point towards an increase of 0.2% on a month-on-month basis, broadly in line with February’s figure. Also released from the US will be the weekly initial jobless claims figure, expected at 200,000, hovering slightly above the 50-year low seen last week though still showing a relatively tight US labour market.  

Elsewhere, focus will likely be on overnight data releases from both New Zealand and Japan. From the former, trade balance figures are expected to show a slightly narrower deficit of 6.34bln NZD, though this data point is typically of little interest to markets. Japanese data is likely to result in more volatility, with both unemployment and CPI inflation figures (for the Tokyo area) due. The former is expected to tick up modestly to 2.4%, showing the Japanese labour market practically at full employment. Meanwhile, inflation figures are once again expected to exemplify the sluggish pace of price increases plaguing the Japanese economy. Expectations are for Tokyo CPI to increase at 0.8% on a year-on-year basis, with core inflation set to have remained unchanged at 1.1% in April, somewhat justifying the BoJ’s ultra-loose policy stance. 

Central bank speakers are also lacking today, with just ECB Vice President de Guindos due. Any comments on monetary policy will be closely watched in light of continued soft economic data, especially comments surrounding a tiering of the negative deposit rate. Also of note is the US Treasury’s semi-annual Currency Report, due to be released by close of business tomorrow, set to outline those countries the US deems to be manipulating their currencies, though China is unlikely to be included on such a list due to ongoing trade negotiations.

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30pm USD Weekly Jobless Claims 200k 192k
1:30pm USD Durable Goods Orders (March) 0.8% -1.6%
1:30pm USD Durable Goods Orders (March - ex. transport) 0.2% -0.1%
11:45pm NZD Trade Balance (y/y - March) -$6.34bln -$6.62bln