NY Open: Bank of Canada hikes, signals more to come

USDCAD plunged from 1.3090 to 1.2994 when the Bank of Canada announced that future rate hikes wouldn’t be gradual. More specifically the BoC statement noted that this statement was deleted: “we will continue to take a gradual approach, guided by incoming data.”

The BoC raised the overnight rate to 1.75% from 1.50% as widely expected and said: “Governing Council agrees that the policy interest rate will need to rise to a neutral stance to achieve the inflation target.” That implies another hike at the December meeting is now on the table.

The drop in USDCAD below support in the 1.3060-70 area turned the technicals negative but needs to break below the 1.2980-90 zone to suggest a short-term top is in place in the 1.3130-50 area. If not, it suggests further 1.2990-1.3150 consolidation. However, a break of 1.2990 would target 1.2800.

FX markets are skittish. Negative Brexit headlines and the EU/Italy budget wrangle isn’t helping sentiment, but the more significant concern is US equity market volatility. US stock markets tend to crash in October, with three October meltdowns at 10-year intervals since 1987. Traders are well aware of this phenomenon and perhaps, fears of being overdue for the next one, have them on high alert. 

Equity traders are concerned about downgraded profit outlooks from some recent earnings reports, although today’s Boeing (BA:NYSE) and UPS: (UPS: NYSE) results disputed that notion. The Dow Jones Industrial Average is flat after opening with a small gain. The S&P 500 and NASDAQ are modestly lower as of 14:00 GMT.

The US dollar climbed steadily since New York opened with the euro being the biggest loser, dropping from 1.1471 to 1.1400, weighed down by the EU/Italy budget dispute.  Sterling is the second biggest loser.