BoC statement to leave rates unchanged, BoJ minutes

Forex News and Events

The Bank of Canada (BoC) will release its rate decision today. We expect the Bank to leave its target rate unchanged at 0.75%, in line with median forecast. The recent downturn in the Canadian economy is likely to gradually fade away as recent data surprised on the upside. April unemployment rate came in flat but better than expected at 6.8% versus 6.9% while manufacturing sales increased in March by 2.9%m/m versus 1% expected, rebounding from -2.2% the previous month. Moreover, March’s retail sales printed at 0.7%m/m while market analysts were looking for a weaker read of 0.3%. However, inflation remained of major concern as the consumer price index rose only 0.8% in April compared with a year earlier, as the country is still suffering from lower oil prices (WTI prices dropped more than 40% from a year earlier). However, as written in its latest report, the BoC expects inflation “to ease slightly below 1% in the coming month” before meeting the 2% target in 2016.

A strong dollar, higher oil prices and a strengthening US economy will do the job. The BoC does not need to take a more proactive stance at the moment. In May, the CAD already retreated 3.89% against the GBP and 2.10% against the dollar. USD/CAD surged above the 1.2378 resistance (Fib 50% on March-May debasement) and is about to validate the breakout. We expect the dollar to strengthen further against the CAD.

BRL under pressure

USD/BRL broke the strong resistance standing around 3.09 (multi highs and lows) and is turning the level into a support. The real closed at 3.1535 yesterday against the dollar as markets await the voting results from the senate for two bills dealing with fiscal consolidation. The Brazilian currency will therefore remain under pressure as the approval process goes on. The upside is widely open with a strong resistance around 3.30 (previous highs)

BoJ’s minutes target inflation (by Yann Quelenn)

The Bank of Japan’s minutes of its April policy board meeting have been released early this morning. Major statement was that the Quantitative Easing will continue until the 2% inflation is stable. Indeed, the price stability is primary concern for the central Bank and their credibility. For this reason the BoJ has decided to take a breath and to delay the 2% inflation target until the first year of 2016. However, some members think the new target is also too optimistic. It also has been added that “private consumption lacks momentum”. Nonetheless incomes are improving and should push consumption higher and therefore create inflation.

We anticipate inflation to rise as the low oil price effect is diminishing and the current debase of the Yen will give positive traction to the inflation. Following these information, the USDJPY has reached 122.78 and is still trading around this level, the highest since 2007.

EURUSD - Bouncing on the short term trend-line