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.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
