Dovish BOC Prompts Severe Slump for Canadian Dollar

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Headlines

  • NAB Business Conditions Index Hit Record High in February – Australian Dollar gains limited by weaker overall confidence
  • Pound Pushed Higher After Spring Budget Statement – Investors encouraged in spite of mixed nature of OBR forecasts
  • CAD Exchange Rates Slumped Sharply on Poloz Comments – BOC Governor took surprising dovish view on monetary policy
  • Softer US Inflation Limited US Dollar Appeal – Federal Reserve may adopt less aggressive approach to monetary tightening

Australian Dollar

The Australian Dollar pushed higher against some of its softer rivals on Tuesday, even as the latest raft of domestic data proved rather mixed in nature. This was largely thanks to the latest NAB business survey, which clocked a record high of 21 on its conditions index. As sentiment within the Australian economy appears to be rather more upbeat than previously thought this encouraged AUD exchange rates to strengthen, although this was tempered by the weaker nature of the overall confidence index.

If the Westpac consumer confidence index for March can deliver a similarly upbeat showing the Australian Dollar could see stronger gains this morning.

Sterling

Reaction to Chancellor Philip Hammond’s first spring statement was generally positive, with investors encouraged by the modest upward revision to the Office for Budget Responsibility’s (OBR) 2018 growth forecast. While the OBR was rather less optimistic over the longer term outlook of the UK economy, lowering its forecasts for 2021 and 2022, this failed to particularly weigh down the Pound. Even so, these gains look distinctly fragile in the absence of any fresh policy measures.

Confidence in Sterling looks set to ease once again today, with a lack of economic data limiting support for GBP exchange rates.

Euro

An unexpected uptick in French non-farm payrolls offered some fresh support to EUR exchange rates, encouraging further confidence in the domestic outlook. Comments from European Central Bank (ECB) policymaker Philip Lane also encouraged investors, indicating that he sees encouraging signs for inflation in recent wage settlements and mark-ups. Even though Lane maintained that there is no case for interest rates to rise in the near future this was still a hawkish enough appearance to boost the Euro.

However, as ECB President Mario Draghi is due to speak this evening the single currency may struggle to hold onto a stronger footing for long.

US Dollar

February’s US consumer price index data failed to encourage the US Dollar, as inflationary pressure was found to have dipped from 0.5% to 0.2% on the month. This is likely to give the Federal Reserve less incentive to take an aggressive approach to monetary policy and raise interest rates less than four times over the course of 2018. While the Fed remains on course to hike rates next week this is already effectively priced into USD exchange rates, limiting their support.

Even so, as forecasts point towards a rebound in the latest advance retail sales figure the mood towards the US Dollar could improve tonight.

Canadian Dollar

Comments from Bank of Canada (BOC) Governor Stephen Poloz put CAD exchange rates under significant pressure overnight. Markets saw Poloz’s comments as an indication that the BOC will not raise interest rates again in the near future, sharply diminishing the appeal of the Canadian Dollar. As worries remain over the domestic outlook, as a result of increasing US protectionism, there was little reason to favour the ‘Loonie’ at this stage.

The negative impact of Poloz’s comments is likely to keep the Canadian Dollar under some degree of pressure in the near term.

New Zealand Dollar

Even though February’s food price index showed a contraction of -0.5% on the month NZD exchange rates were still able to gain ground yesterday. While signs continue to point towards lacklustre domestic inflation this was not enough to keep the New Zealand Dollar on a downtrend. As market risk appetite persisted, and the US Dollar weakened, the appeal of the higher-yielding ‘Kiwi’ remained heightened.

This morning’s current account gross domestic product ratio figure could put more of a dampener on NZD sentiment, however.

Data Released

March 14th 07:45 NZD Current Account Gross Domestic Product Ratio YTD (4Q) -2.6%
March 14th 09:30 AUD Westpac Consumer Confidence (MAR)
March 14th 18:00 EUR ECB President Draghi Speaks
March 14th 22:30 USD Advance Retail Sales (MoM) (FEB) 0.3%

Post by TorFX

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