U.S. Session Forex Recap – July 14, 2016

  • BOC kept interest rates on hold at 0.50% as expected
  • BOC downgraded 2016 GDP forecast from 1.7% to 1.3%
  • BOC lowered estimate for exports contribution from 1.1% to 0.3%
  • BOC downgraded 2017 GDP forecast from 2.3% to 2.2%
  • BOC upgraded Q2 CPI estimate from 1.3% to 1.6%
  • BOC: Brexit to trim global GDP by 0.2% by end of 2018
  • Fed Beige Book: Economy grew at a modest pace in most regions
  • U.S. crude oil inventories down by 2.5 million barrels
  • U.S. import prices up by 0.2% vs. 0.6% consensus

All eyes and ears were on the Bank of Canada, as Governor Poloz and his gang of policymakers announced their interest rate decision and updated economic forecasts.

Major Events:

BOC interest rate decision – As expected, BOC policymakers sat on their hands and kept interest rates unchanged at 0.50%. However, their accompanying statement was less upbeat than usual as head honcho Poloz cautioned that the Brexit might trim global GDP by about 0.2% by the end of 2018.

In addition, Canadian central bank officials downgraded their own GDP forecast for the year from 1.7% to 1.3% and for next year from 2.3% to 2.2%. Contributions of exports to overall economic growth are expected to be at 0.3% from their prior forecast of 1.1%. On a less downbeat note, the BOC upgraded its Q2 CPI estimate from 1.3% to 1.6% and its Q3 CPI estimate from 1.2% to 1.5% presumably due to the bounce in crude oil prices.

Just like the RBNZ and RBA, the BOC also expressed concern about rising house prices and cited that these gains might be unsustainable. Poloz explained that financial vulnerabilities are rising, particularly in Vancouver and Toronto.

U.S. economic reports – The mood among Fed districts was generally upbeat as the Fed Beige Book contained mostly positive remarks on consumer spending, employment, loan demand, and lending conditions. Overall, officials assessed that the economy grew at a modest pace in most regions.

On the other hand, import prices data came in weaker than expected as it showed a meager 0.2% uptick instead of the estimated 0.6% gain. This was also significantly lower compared to the earlier 1.4% increase in import prices.

Major Currency Movers:

CAD – The Canadian currency was able to breathe a sigh of relief when the BOC refrained from cutting interest rates for now.

USD/CAD dropped from a high of 1.3048 to a low of 1.2935 during the announcement, CAD/JPY popped up from a low of 79.68 to a high of 80.74 before settling around 80.50, EUR/CAD slipped from the 1.4500 handle to a low of 1.4368, and AUD/CAD seemed unstoppable in its drop from .9970 to .9850.

GBP – The British pound continued to retreat against its peers as traders are starting to price in expectations of additional easing from the BOE.

GBP/USD retreated from 1.3285 to test support at the 1.3100 handle, GBP/JPY is down to the 136.50 minor psychological mark from the 139.50 area, EUR/GBP continued to climb from .8300 to a high of .8470, and GBP/CAD is down to the 1.7000 mark once more.

Watch Out For:

See also:

Asian Session Recap

London Session Recap

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