Canadian Dollar Update October 31, 2019 – Canadian Dollar hammered by BoC
USD/CAD Open: 1.3158-1.3159 Overnight Range: 1.3148-1.3178
Oil is at $54.39 and gold is at $1,514.40. US markets are lower today.
The short-term USD/CAD technicals are neutral-bearish. For today, USD resistance is at 1.3177. Support is at 1.3128.
The Canadian dollar ended a two-week rally spectacularly following a dovish Bank of Canada policy statement and Monetary Policy Report (MPR). USDCAD soared to a peak of 1.3207 from a low of 1.3075 prior to the Bank of Canada news. It consolidated those gains in a 1.3150-1.3176 range in an active overnight session.
The Bank of Canada did as expected when they left interest rates unchanged at 1.75% at the October 30 meeting. However, the tone of the statement was more dovish than expected. The BoC said “The outlook for the global economy has weakened further since the Bank’s July Monetary Policy Report (MPR). Ongoing trade conflicts and uncertainty are restraining business investment, trade, and global growth.” The statement went on to forecast “below-potential” domestic economic growth in the second-half, blaming continued adjustments in the energy sector and ongoing trade conflicts. The BoC even suggested that Canadian dollar strength was part of the problem when they noted “Commodity prices have fallen amid concerns about global demand. Despite this, the Canada-US exchange rate is still near its July level, and the Canadian dollar has strengthened against other currencies.” However, the risk of BoC intervention in the currency is slim to none.
The Canadian dollar underperformed all the G-10 major currencies along with the Japanese yen. The G-10 currencies rallied after the Federal Open Market Committee statement and Chair Jerome Powell’s press conference and extended their gains overnight.
The Federal Open Market Committee (FOMC) was universally expected to chop the federal funds range to 1.75-2.00% from 2.00-2.25%, and that is what they did. Most analysts believed the Committee would indicate that the rate cut would be the last cut for the next few months and Mr. Powell confirmed that view, but a tad more hawkishly than expected. Typically, a steady Fed rate policy in an environment when the major central banks are still easing would boost the US dollar. Not this time. During his press conference, Fed Chair Jerome Powell emphatically said that rates would only rise if inflation was rising and “we don’t see that happening.” The US dollar climbed, led by gains in New Zealand and Australian dollars. The Canadian dollar didn’t see any benefit and underperformed.
Overnight, USDJPY extended losses as the Fed outlook knocked 10-year US Treasury yields down to 1.750% from 1.839%. The Bank of Japan policy meeting was mostly a non-event. They left rates unchanged but hinted that further policy easing was still on the table.
There is a lot of US data due today, but any impact will be short-lived due to yesterday’s FOMC statement. The same holds for the Canadian data. However, there is a risk of USDCAD selling due to month-end portfolio rebalancing flows.
Today’s Suggested Range USD/CAD: 1.3110 – 1.3210
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