LOONIE GAINS AFTER BOC POINTS TO MORE RATE HIKES
The Canadian dollar gained against the USD after the Bank of Canada (BOC) increased interest rates by a quarter of a percentage point. This was the fifth rate hike since last summer. The overnight rates are now at 1.75%, which is the highest level in ten years. In response to the hike, the four biggest Canadian banks raised their rates to consumers. These banks are TD, RBC, BMO, and CIBC. In the press release, the BOC said that:
CPI inflation dropped to 2.2 percent in September, in large part because the summer spike in airfares was reversed. Other temporary factors pushing up inflation, such as past increases in gasoline prices and minimum wages, should fade in early 2019. Inflation is then expected to remain close to the 2 percent target through the end of 2020. The Bank’s core measures of inflation all remain around 2 percent, consistent with an economy that is operating at capacity.
The euro rose slightly against the USD in the Asian session. This came as traders waited for the interest rates decision from the European Central Bank (ECB). The bank is expected to leave interest rates unchanged. Still, traders will be waiting for the statement, which will offer forward guidance. Most importantly, they will want to see whether the bank will give a clear guidance on its ‘through summer’ statement. In the past few statements, the bank has promised to start tightening ‘through summer’ which is vague. In recent weeks, the European economy has faced a number of challenges such as the controversial Italian budget proposal and Brexit.
The USD was slightly higher today against its peer currencies after the Fed released its Beige Book. This is a document where key Fed officials from the 12 districts talk about the economy and monetary policy. In the statement, the officials said that wages were growing at a modest rate. They also said that manufacturing was growing at a faster rate while labor shortages were reported in all the districts. Overall, the statement said that the US economy had continued to grow at a faster rate.
The EUR/USD was little moved in the Asian session. It is trading at 1.1410, which is slightly higher than yesterday’s low of 1.1380. On the 30-minute chart below, a bullish crossover between the 14-day EMA and the 28-day EMA is happening, an indication that the pair could see upward movements today. This is likely to happen after the ECB publishes its interest rates statement. However, the pair could also continue to move lower. If it does, it will test the important level of 1.1300.
The USD/CAD fell yesterday after the statement from the BOC. The pair fell to an intraday low of 1.2963. This was the lowest level since Friday last week. In the Asian session, the pair moved slightly higher and is currently trading at 1.3020. Today, the pair is likely to consolidate within these levels as traders wait for the US GDP numbers tomorrow.
The GBP/USD pair fell to an intraday low of 1.2868 in the Asian session. This is as traders continued their worries about Brexit and the slow pace of negotiations. On the six-hour chart below, the 28 and 14-day EMA show that a reversal on the pair will be unlikely. This is confirmed by the MACD and the ADX indicator. The ADX is currently at 28, an indication that the pair will likely decline further.