It’s the BOC’s time to speak up this week! Will the central bank raise its rates as many are expecting? Here’s what you need to know about the event.
BOC’s policy statement (Oct. 25, 2:00 pm GMT)
As expected, the Bank of Canada (BOC) kept its rates at 1.50% for another month in September.
The central bank was optimistic in its statement, saying that business investment, employment, export activity, and consumption are on the rise. Unfortunately, the BOC’s hiking bias was overshadowed by NAFTA-related concerns at the time.
This week analysts expect to see the BOC gang to finally raise their interest rates to 1.75%. And why not?
The central bank has already nixed the “gradual approach” part of their previous statement, while Senior Deputy Governor Carolyn Wilkins hinted that they’d rather “preempt a buildup in inflation pressures” than take the gradual approach.
Don’t expect Governor Poloz and his Senior Deputy to make hawkish remarks rain during their presser, though. After all, last Friday’s CPI release (see details below) already highlighted the struggle to keep inflation in the middle of the BOC’s 1% – 3% range.
Oil price updates
As we can see below, the Loonie still very much takes cues from oil price movements.
Thing is, this week promises to be a “live” one for Black Crack too. For one thing, Iran’s sanctions are scheduled to take effect on November 4, which could invite a lot of pre-emptive positioning from oil players.
And then there’s the tensions between oil superpowers U.S. and Saudi Arabia over the alleged killing of journalist Jamal Khashonggi.
The Donald might be softening his stance against Crown Prince Mohammed bin Salman (MBS) after calling him “a strong person” who “truly loves his country.” Still, pressure from other Western countries to explain the incident could still urge MBS to pursue decisions counter to the U.S.’ interests.
Last Week’s Price Review
The Loonie is having another rough time this week. The Loonie even lost out to the euro and the pound and is now the biggest biggest loser of the week (as of 5:00 pm GMT).
And the Loonie is down in the dumps again because of another slump in oil prices, as well as Canada’s disappointing CPI and retail sales reports.
The Loonie showed weakness early on because of sliding oil prices, but caught a bid later because of the positive vibes from the BOC’s Business Outlook Survey.
And there was apparently follow-through buying since oil wobbled a bit on Tuesday, but the Loonie continued to trend higher on most pairs. There were no fresh, positive catalysts, so market analysts pointed to higher BOC rate hike expectations because of the upbeat Business Outlook Survey.
CAD bulls got roasted come Wednesday, however, since oil prices slumped hard. And market analysts say that oil prices slumped because of higher U.S. crude oil inventories.
Oil prices then continued to slide on Thursday, which dragged the Loonie even lower. And according to market analysts, oil continued to slide because there were growing concerns about China’s economy (and demand for oil) because of the ongoing trade war between the U.S. and China.
Oil and the Loonie would finally find support after news began to spread that Norway and the E.U. have requested the World Trade Organisation (WTO) to establish a dispute resolution panel to verify the legality of U.S. tariffs on steel and aluminium, which likely fueled hopes that the ongoing trade war may de-escalate.
Unfortunately for the Loonie, Canada’s CPI report and retail sales report both surprised to the downside, which caused the Loonie to slump hard across the board even as oil prices continued to recover.
As for specifics, retail sales fell by 0.1% month-on-month instead of increasing by 0.3% as expected. Worse, 7 of the 11 retail store types reported declines in sales, so the core retail sales reading came in at -0.4%, contrary to expectations for a 0.1% rise.
The CPI report, meanwhile, showed that headline CPI fell by 0.4% month-on-month instead of holding flat for the month. The year-on-year reading, meanwhile, decelerated sharply from +2.8% to a four-month low of +2.2%. The market was only expecting a slightly weaker 2.7% annual increase.
And the bad news doesn’t stop there since all three of the BOC’s preferred measures for the core reading all retreated for the first time since November 2016.