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BoC to liven things up?
Published Updated Wed, June 9 06:13
Overnight Headlines
*USD stuck in range, trading around 90
*US equities were flat, small caps continue to outperform
*Oil through $72, bitcoin bounces from $31,000
US equities were quiet with growth stocks performing marginally better and the energy sector benefitting from higher oil prices. Meme stocks were again a focus with so little movement elsewhere, Asian markets and European futures are mixed this morning.
USD traded in another narrow range as markets looks to the US inflation data and the ECB meeting tomorrow. EUR weakened modestly and trades below 1.22, with German industrial production disappointing on a construction slump. GBP is well and truly stuck in the 1.41-1.42 range as the UK government considers a two-week reopening delay.
Market Thoughts – Bank of Canada to wait until July for more action
Today’s BoC meeting is expected to be largely a non-event as the bank waits for more post-lockdown economic data before signalling another cut in the pace of its bond buying. After moving to a hawkish bias at its April meeting, the message should be repeated. This means forward guidance for a first rate hike in the second half of 2022 with a continued adjustment of QE if economic conditions improve. The data since April has been mixed with disappointing job growth but punchy inflation and retail sales numbers.
If the bank tees-up another taper round in July, then CAD will find some support amid quiet markets as this will further widen the policy divergence between the BoC and the patient Fed.
Chart of the Day – USD/CAD desperate for catalyst
The downward pressure on the dollar since March 2020 is well entrenched which tells us that the 1.20 support mark should give way at some point. USD/CAD failed to bounce significantly during the whole of May, only touching 1.22 once in the middle of last month and near-term resistance now lies in a 1.2135/45 zone. The long-term bear channel has turned into a bearish wedge pattern, with targets to the downside being the May 2015 low at 1.1919 and the 200-month SMA below 1.17. The longer we consolidate, the bigger the break will be and Thursday’s US CPI data will need to be watched for any rebound move.
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