CAD
Perhaps unsurprisingly, tomorrow’s BoC meeting is likely to be garnering the majority of attention from loonie traders today. Markets see an 86% chance that the Governing Council delivers a 50bp rate cut – an outcome also favoured by economists by a 2-1 ratio. We are inclined to lean in that direction as well given a soft set of recent data prints. Not to mention, the Fed has already broken the 50bp rate cut taboo. All told we see little reason for the BoC not to deliver a jumbo rate cut, albeit, given the Governing Council’s proclivity for surprising markets, this is not quite a done deal either. That said, given our own view on tomorrow’s decision, we loonie risks skewed to the downside over the coming days. USDCAD is currently trading above 1.38 – a dovish decision tomorrow could put a break above 1.39 and potentially year-to-date highs in play for the pair.
USD
The dollar took a leg higher on Monday, despite a lack of typical market-moving events, with the DXY index posting a respectable 0.5% gain. Rather, the impetus for the greenback’s climb appears to have been new figures suggesting that the polling gap between Harris and Trump has closed over recent days – leading traders to reassess potential Trump trades ahead of voting day on November 5th. For FX markets, this means a stronger dollar on the prospect of higher fiscal spending and tariffs. Both are likely to help the US economy outperform, with the latter also set to disrupt international trade, combining to offer a dollar-positive backdrop. Today looks likely to provide more of the same too. With little on the docket domestically, this should keep traders focused on the upcoming elections.
EUR
With Trump trades front of mind on Monday, EURUSD was left to be buffeted by dollar crosswinds. Neither a speech by the ECB’s Simkus, nor a handful of second and third-tier data prints, offered much direction for the pair. Today, however, that should change, with six separate ECB speakers all due to hit the airwaves. Perhaps most importantly, ECB President Lagarde is due to speak twice, including an interview on Bloomberg TV at 15:00 BST. Given the venue, a quizzing on monetary policy seems a certainty, one that we think offers downside euro risks. If Lagarde doubles down on her dovish comments following the ECB decision to cut rates last week, a further acceleration in eurozone easing bets should continue to weigh on the single currency, with traders potentially eyeing up the key psychological of 1.08 level for EURUSD.
GBP
Like the euro, sterling also found itself on the back foot on Monday in the face of a charge higher for the dollar. Also like the euro, the focus today for sterling traders will be on central bank commentary, with both BoE governor Bailey and Deputy Governor Breeden set to speak. Importantly, they make up two of the three swing votes on the MPC. As such, their words are likely to be closely scrutinised by markets. We suspect that both will likely skew dovish at the margin too, in light of September’s soft CPI print. That said, with a rate cut next month fully priced, and a 70% chance of two rate cuts by year-end – the scope for significant acceleration in Bank Rate easing bets looks a little limited, especially when considering that growth indicators continue to print solid, and with budget risks looming on the horizon. Given this, we see odds skewed toward the pound trading under pressure this afternoon. But any selloff for the pound is likely to remain contained, with the main event of note coming up at month-end, with a widely anticipated budget set to be delivered on October 30th.
This content was originally published by our partners at Monex Canada.