FX Today Central Banks in Focus – Will BOC Hike? Fed Halt?

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Market Drivers January 9, 2019
Slight risk on bias starts the day
BOC and FOMC minutes on tap
Nikkei +1.1% Dax 0.53%
Oil $50/bbl
Gold $1282/oz.

Europe and Asia:
AUD Building Permits -9.1% vs. -0.5%

North America:
CAD BOC Rate Decision 10:00
USD FOMC Minutes 14:00

Another sedate session for currencies tonight but FX market saw slight risk on bias through Asian and early European trade as positive noises from US -China trade talks boosted market sentiment.

US-China trade talks appear to be making progress with US representatives especially positive on the state of negotiations. The Chinese counterparts have been more circumspect stating only that “if it is a good result it will beneficial to China and the world”. Still, the market is assuming that some sort of a deal will be done as both parties are now experiencing an economic slowdown as a result of the trade war and are highly motivated to end the impasse.

USDJPY and EURJPY were trading higher as a result of the improved sentiment with the former pushing towards the 109.00 figure once again while the later moved towards 125.00

Elsewhere the Brexit drama continued with UK Parliament now forcing PM May to pass some sort of a Brexit deal or consider the possibility of not leaving the EU at the scheduled date. As we’ve been noting recently, the default position of the market is that some sort of a Brexit compromise deal will happen, despite all evidence pointing to Ms. May losing the meaningful vote scheduled for next week. The bottom line is that an overwhelming majority of UK citizens opposes a hard Brexit and the markets believe UK politicians will cave in to the public will one way or another. Cable was steady above 1.2750 in mid-morning London trade awaiting more headlines from the jockeying within the UK Parliament.

In North America today the focus will be on central banks with BOC due to announce its interest rate decision and the Fed due to release the meeting minutes later in the day. As our colleague Kathy Lien noted, “Unfortunately Canadian dollar bulls may find themselves disappointed by the BoC who altered their outlook significantly in December. After raising interest rates in October, the BoC had the market looking for more tightening when they said interest rates needed to rise to neutral levels. However, after a more than 20% drop in oil prices and wild swings in equities, the central bank dialed back their optimism and warned that risks to growth shifted from the upside to the downside. They felt that the energy sector could be materially weaker than they had previously thought, which implies that the move to neutral can wait. Oil prices are off their lows and stocks are rebounding for the third day in a row but all of the market indices are still lower than where they were on December 5th when the central bank last met.” USDCAD held steady below 1.3250, but would likely fall sharply towards 1.3100 if the BOC actually surprised the market with a hike.

Boris Schlossberg
Managing Director

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