Article Highlights

  • BOC kept interest rates on hold at 0.50% as expected
  • Canadian current account deficit narrowed from 19.7B CAD to 10.7B CAD
  • U.S. ISM manufacturing PMI rose from 56.0 to 57.7 vs. 56.2 forecast
  • U.S. crude oil inventories up by 1.5M barrels as expected
  • U.S. core PCE price index up by 0.3% as expected
  • U.S. personal income up 0.4% vs. 0.3%, personal spending up 0.2%
  • U.S. final manufacturing PMI downgraded from 54.3 to 54.2 in Feb
  • FOMC member Brainard: Rate hike appropriate fairly soon
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Dollar domination! Bulls picked up on Trump’s spending plans and Fed rate hike talk from earlier in the day and pushed the Greenback higher across the board.

Major Events:

Mixed U.S. economic data – The latest batch of reports printed a mix of green and red, although most of the top-tier ones came in stronger than expected. For one, the ISM manufacturing PMI for February had a sharper climb from 56.0 to 57.7 versus the projected uptick to 56.2, signaling a much faster pace of industry growth.

Components of the report revealed that the price sub-index dipped from 69.0 to 68.0 to reflect weaker inflationary pressures in February while the employment sub-index dropped from 56.1 to 54.2. Large gains were seen in new orders and production, as well as inventories and imports. The final manufacturing PMI from Markit for the same month was downgraded from the initial 54.3 reading to 54.2, down from its January reading of 55.0.

The U.S. core PCE price index, which is seen as the Fed’s preferred gauge for inflation, showed a 0.3% uptick as expected, faster than the earlier 0.1% increase. Meanwhile, personal income advanced 0.4% versus the 0.3% forecast but personal spending lagged with a meager 0.2% uptick versus the projected 0.3% gain.

More rate hike talk from Fed officials – FOMC member Kaplan had another testimony in the latest New York session, and he simply reiterated his previous remarks on how the Fed should gradually begin the process of hiking interest rates. He added that if inflationary pressures continue to heat up, the central bank should consider tightening more aggressively.

Meanwhile, FOMC member Brainard also noted that an interest rate hike is appropriate fairly soon, consistent with the biases of majority of the policymakers that delivered speeches earlier on. She pointed out that constraints from Europe and China over the past few years have been easing and that the U.S. economy is approaching the Fed’s employment and inflation goals. Still, she clarified that she’d support a rate hike soon given improved economic conditions and global growth, which suggests that upcoming reports could make-or-break her hawkish bias.

BOC kept rates unchanged – As expected, the BOC kept interest rates on hold at 0.50% in their latest monetary policy announcement. Similar to their previous statements, Canadian central bank officials judged that there are uncertainties weighing on their economic outlook and that the current stance of monetary policy remains appropriate. *yawn*

Governor Poloz also downplayed the recent pickup in hiring, citing that weak wages and hours reflect persistent slack in the labor market. He also mentioned that a few inflationary measures also reflect excess capacity and that the impact of higher oil prices on overall price levels would be temporary. He did admit that Q4 GDP growth was slightly stronger than they expected but cautioned that Canadian exports face several headwinds.

Major Market Movers:

USD –  The Greenback extended its gains against its rivals, lifted by expectations of fiscal stimulus and a March rate hike.

EUR/USD slipped from 1.0546 to a low of 1.0514 then popped up to a high of 1.0572, GBP/USD tumbled from 1.2373 to a low of 1.2261, USD/JPY is up from 113.54 to 114.14, and NZD/USD bounced to a high of .7170.

Watch Out For:

  • 12:30 am GMT: Australian building approvals
  • 12:30 am GMT: Australian trade balance (3.28B AUD expected, 3.33B AUD previous)

See also:

London Session Recap

Asian Session Recap

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