Image via Bank of Canada

Bank of Canada Up Next

The Bank of Canada is on deck later today for their September rates meeting. Whilst growth has trailed off recently; the bank is not expected to move rates at this point. The decision today comes without a monetary policy report or a post-decision press conference and so is likely to be quite muted.

Among the key factors likely to weigh on today’s decision, undoubtedly recent growth data will be high on the list.

Canadian Growth in the second quarter fell to -0.4 suggesting a significant contraction in the Canadian economy. Despite the data coming in weaker than expected, the BOC’s own forecasts were for a -1% print and so will likely be of lesser concern to the bank.

This weak growth data indicates a higher level of slack in the Canadian economy. However, the BOC has regularly reduced their own estimates of potential growth during periods of reduced capital investment, again suggesting that the figure will not weigh as heavily on the bank as markets anticipate.

With the bank restricted by means of communication at this meeting, it seems likely to expect a very muted response to the decision which should meet consensus calls of no change.

Looking At USD/CAD

With the BOC on hold and Hawkish signals coming from the Fed, it looks like USD/CAD has scope for some further upside from here. Despite the significance of Oil as a key driver for the Canadian Dollar, as a commodity currency, interest rate differentials between the two countries has been a shifting factor which now supports a higher USD/CAD path.

At the start of the year, the Bank of Canada looked set to cut rates to 0.25% which then would have left markets anticipating a further move down to the zero bound or possibly the start of quantitative easing. However, the decision by the new Canadian government to introduce fiscal easing in the spring took a lot of pressure off the BOC to ease and also off the Canadian Dollar.

With the Fed sounding more and more supportive of a rate hike this year and Oil threatening further weakness, the likelihood of the current USDCAD range resolving to the upside continues to grow. Price is currently sitting on trend line support, which if sustained, suggests a rotation higher. The key breakout level will be a breach of the 1.3250s high.

Data Flash

Australian 2Q released overnight dropped down to one-year lows QoQ at 0.5% vs. 0.6% expected whilst the YoY figure remained in line at 3.3%. The data comes just after the RBA’s decision this week to keep rates on hold amidst signs that the global economy is improving, albeit at a lower than average pace.

In the EuroZone, German Industrial Production for July showed a heavy contraction falling to -1.2% vs. 0.2% expected YoY and -1.5% vs. 0.1% expected MoM. These figures represent a growing bearish trend in the Industrial sector with data having fallen from 2.7% in  January of this year to the current low levels.

In the UK, Industrial Production data for July sharply outperformed expectations at 2.1% YoY vs. 1.9% expected and 0.1% MoM vs. expectations of -0.2%. However, Manufacturing Production over the same period was significantly weaker than expected at 0.8% vs. 1.7% YoY and -0.9% vs. -0.3% MoM.  GBP was knocked lower following the data though some of the sting was taken out of the release following the bumper August Manufacturing PMI last week.

Looking Ahead

Besides the Bank of Canada rate decision, we have a relatively light data slate for the rest of today, however, there are a few events to point out. The Bank of England’s Carney, Cunliffe, Forbes, and McCafferty will be speaking later today with traders eager to gauge the comments ahead of the BOE’s September rates meeting next week.  Following their comments, we also have the UK NIESR GDP Estimate for August.