The models are broken
The market is trying to get back to the pre-Covid and pre-war times, but that model is broken. A new dawn is here and the financial world needs to adapt.
Steen Jakobsen,
Chief Investment Officer
Head of FX Strategy
The Bank of Canada kept rates unchanged as widely expected and the statement released with the decision drops the reference to the need to be “cautious” on further rate rises, a move that is seen as hawkish relative to expectations. But there was also a bit of a revision of the language in the description of the need to hike interest rates, with a switch to the word “gradual” apparently seen as an upgrade relative to the prior wording.
The short end of the yield curve rose several basis points from the day’s low, but is still within the trading range of the last couple of days, so the takeaway in rates doesn’t seem as immediately dramatic as the immediate spike higher in CAD in the wake of the statement.
In USDCAD, the key USD pair, the 1.2900 area is important on a daily close basis for testing whether the USDCAD rally is danger of further unwinding here. Elsewhere, independent of the USD outlook, this statement could prove supportive in CAD crosses like AUDCAD, which has backed up sharply of late.