CAD
The loonie continues to trend lower, in line with our longstanding base case. As previously noted, the differing fortunes on either side of the US-Canadian border warrant a significantly higher USDCAD exchange rate. With little by way of market catalysts on Monday, this dynamic was on full show. The pair climbed 0.4%, albeit assisted by a soft session for both equities and oil. Today looks set to be little different given another light North American data calendar. If we are right, then combined with Friday’s Canadian jobs data, we continue to think that this should be enough to see USDCAD close out the week above 1.37.
USD
A flat start to the week for the dollar looks set to continue today. Monthly trade balance data and NFIB survey results are the two main data events of note, though neither should offer much impetus for the greenback. Similarly, given the lack of market-moving commentary from yesterday’s busy FOMC docket, we are inclined to think that today’s roster of Fed speakers will be equally underwhelming. Instead, US traders will likely have to wait for tomorrow’s FOMC minutes, and Thursday’s CPI report, for something to get their teeth into domestically.
Outside the US, a policy decision from the RBNZ is the one major event of note through the next 24 hours. We expect a 50bp rate cut under our base case. However, we also think markets implied odds of a smaller 25bp cut look underpriced at just 20% given the lack of recent official data, and the move higher for US rate expectations in the past few days. With this in mind, a softer kiwi looks the most likely outcome overnight, but there is a significant risk that a smaller-than-expected cut catches markets off guard, triggering a sharp move higher for NZDUSD.
EUR
Like the US, a light roster of data prints should keep the market focus on central bank speakers in the eurozone today. Also similar to their North American counterparts, we think the ECB has little to offer markets at this juncture. Swap pricing implies 25bp rate cuts at both the October and December meetings, which looks fair to us. Moreover, this is consistent with recent ECB rhetoric, suggesting that traders will hear little different later today. With this in mind, price action for the euro should remain limited, absent any surprises, with markets left in a holding pattern ahead of US data later this week, and an ECB rate decision on October 17th.
GBP
Sterling softened to start the week, shedding 0.3% against both the dollar and the euro, despite limited domestic news flow. To us, it looks like last week’s comments from BoE Governor Andrew Bailey, combined with further easing in the REC report on jobs, continue to act as a drag. That said, taken in context, we think Bailey’s comments were far from the dovish pivot that headlines initially suggested. As such, the pound’s recent softening looks overdone to us. For now, though, this remains the dominant theme for sterling, a point in evidence this morning. Despite BRC like-for-like sales rising 1.7% YoY, exceeding by some distance consensus estimates that projected a reading of 0.8%, the pound has slipped further through early trading, with no other major data events now scheduled until Thursday.
This content was originally published by our partners at Monex Canada.