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So much for expecting an upbeat BOC statement! Loonie bulls were heavily disappointed by the Canadian central bank’s lack of rate hike hints, taking the currency down to its lowest level in a week.

  • BOC kept rates on hold at 1.25% as expected
  • BOC statement: Escalating geopolitical and trade conflicts could undermine global expansion
  • BOC: Slow Q1 growth due to weaker housing activity and exports
  • BOC: Export growth limited by capacity constraints
  • BOC Gov. Poloz: Interest rates may need to remain below neutral range
  • Fed Beige Book: Economy continued to expand at a moderate pace
  • U.S. EIA crude oil inventories down by 1.1M barrels vs. projected 0.5M reduction
  • New Zealand CPI up 0.5% vs. 0.4% consensus in Q1 2018

Major Events/Reports:

Downbeat BOC statement

As expected, the Bank of Canada kept interest rates on hold at 1.25%. But what threw most Loonie fans off was how the central bank didn’t seem too eager to resume their rate hikes just yet.

In their official statement, the BOC acknowledged that global growth has been picking up but warned that geopolitical tensions and trade concerns (cough, NAFTA, cough) pose risks. On the domestic front, policymakers highlighted how weaker housing and export activity have dampened growth for the first quarter.

Nonetheless, the BOC upgraded their outlook for the next three years, citing that the economy could operate slightly above potential at 2% real GDP growth for the next couple of years and 1.8% in 2020.

Then again, it noted that the projected rebound in export activity might not be enough to cover lost ground in previous periods. Once again, the BOC cited trade policies as a source of uncertainty.

The central bank concluded that Canada has made some progress in key issues they have been watching, namely inflation and wage growth. However, they reiterated that “some some monetary policy accommodation will still be needed to keep inflation on target” and that they will “remain cautious with respect to future policy adjustments.”

Similarly cautious BOC presser

These glass half-empty vibes were reinforced during BOC head honcho Poloz’s press conference as he admitted that much of their deliberations focused on the pace of rate changes.

Poloz went on to say that the Canadian economy might not yet be able to operate at full capacity all on its own, explaining that interest rates may need to stay below neutral for a bit longer.

Still, Poloz cited that Canada has made considerable progress over the past year and that recent wage pressures have been encouraging. For now, he’s seeing some more slack in the economy and there could be some room for demand growth to bring inflation back to their 2% target.

In the Q&A section, he responded to a query on interest rate hikes by saying that the pace of tightening is still a question mark at this point. He reiterated that the central bank is data-dependent and that policymakers discussed the risks involved, adding that some clarity in NAFTA would definitely help.

Yields stay positive, stocks mixed

Signs of fading risk appetite carried on until the New York trading hours, as stocks gave up some of their earlier wins while U.S. bond yields kept advancing.

  • Dow 30 index is down 35.56 points to 24,748.07 (-0.16%)
  • S&P 500 index is up 2.25 points to 2,708.64 (+0.08%)
  • Nasdaq is up 14.14 points to 7,295.24 (+0.19%)

Mostly positive remarks from FOMC members and an upbeat tone in the Fed Beige Book were seen to support yields.

  • U.S. 2-year yield is up 3.3 basis points to 2.427%
  • 5-year yield is up 4.3 basis points to 2.730%
  • 10-year yield rose 4.4 basis points to 2.872%
  • 30-year yield increased 4.1 basis points to 3.061%

Crude oil enjoyed another leg higher on reports that Saudi Arabia wants to see the commodity trading closer to $100 per barrel, spurring expectations that the oil cartel could keep its output deal in place beyond 2018.

Major Market Mover(s):

CAD

Loonie bears returned to the game when the BOC refrained from dropping strong rate hike clues, emphasizing the uncertainties posed by geopolitical and trade concerns.

USD/CAD recovered from a low of 1.2548 to a high of 1.2660, CAD/JPY is down to a low of 84.66, EUR/CAD popped up to 1.5632, and AUD/CAD rallied from .9753 to a high of .9851.

USD

The Greenback chalked up another winning day thanks mostly to higher bond yields supported by positive Fed remarks and cooling geopolitical risks.

USD/JPY advanced from a low of 107.14 to a high of 107.37, USD/CHF is up to .9691, EUR/USD held on to the 1.2375 area, and GBP/USD is down from a high of 1.4247 to a low of 1.4198.

AUD

The Aussie was also a top-performer for the session, possibly supported by easing trade war jitters and positive expectations for the upcoming jobs release.

AUD/USD rose from .7756 to a high of .7785 before consolidating, AUD/JPY continued to rise to a high of 83.75, EUR/AUD is down to a low of 1.5861, and GBP/AUD fell to a low of 1.8242.

Watch Out For:

  • 1:30 am GMT: Australian employment change (See Forex Gump’s preview here!)
  • 1:30 am GMT: Australian unemployment rate (drop from 5.6% to 5.5% expected)