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Hawkish BOC surprises markets boosting the Loonie

  • AUD - Retail Sales m/m: 0.0%
  • AUD - Trade Balance: 0.46B
  • USD - Unemployment Claims: 298K

The Loonie hit two year highs against the Dollar yesterday as the Bank of Canada raised interest rates to 1%. Expected to keep rates on hold after only raising them last month, the strong Canadian economy convinced the BOC to raise rates for the second meeting in a row. The statement following the hike, indicated further hikes if the economic data stays strong. However, they mentioned they would pay attention to the ‘sensitivity’ of the economy with further hikes particularly the pressure of higher rates on indebted households.  

The Greenback took a hit yesterday, as news broke that Federal Reserve Vice Chairman, Stanley Fischer, had resigned, effective mid – October. As a more hawkish member of the Fed, he spent a lot of time defending the traditional economic models suggesting inflation should increase as unemployment drops. This is one of the reasons behind the Fed’s current hawkish bias and with him, the Fed could become more dovish. With Fed Chair, Janet Yellen’s term ending in February, this will give US President, Donald Trump, the opportunity to reshape the Fed. The uncertainty now surrounding the Fed has caused the Dollar to continue to decline. 

  • AUD - RBA Gov Lowe Speaks
  • GBP - Manufacturing Production m/m
  • CAD - Unemployment Rate 

All eyes are on the ECB today as ECB President Mario Draghi will be holding a press conference after the two day policy meeting concludes. The Euro strengthened after Draghi hinted to the end of quantitative easing back in June and the markets are expecting the announcement in October and starting to prepare for it today. However, there is concern within the markets that the Euro has become too strong, adding pressure to exports and weight on the price growth. Some economists expect Draghi to try to step in to weaken the Euro.

Also out later this afternoon, the US will release the Unemployment Claims figure and the Crude Oil Inventories. The inventory levels could drop further as Hurricane Harvey caused many oil refineries in Texas to close, forcing the price of petrol to jump up last week.