Bank of Canada hikes rates to 0.75% from 0.50%

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BoC July rate hike odds jump to 90%, USD/CAD is oversold

The odds of a July BoC rate hike jumped to 90% from 86% after Canadian data showed the economy added 45,300 jobs last month, Statistics Canada said, topping forecasts for a gain of 10,000. The unemployment rate dipped to 6.5 percent, its lowest since April.

The rate hike looks like a done deal… Over the last one month, Canada 10-year yield has jumped from 1.373% to 1.88%. The sharp rally also indicates the rate hike has been priced-in to a large extent, even though at least a small part of the rally was fuelled by the sell-off in the German debt.

Meanwhile, the USD/CAD chart shows the pair is oversold as per the 14-day RSI. Once again, I would want to be a intraday buyer around 1.29 handle for an upside objective of 1.30. My stops would be very tight… just 20 pips.

Daily chart

Screenshot_1.jpg

Market expect 25bps ECB rate hike over next 12 months

Euribor rates

 

Euribor interest rate –

1 month

-0.373 % 07-03-2017
Euribor interest rate –

3 months

-0.331 % 07-03-2017
Euribor interest rate –

6 months

-0.271 % 07-03-2017
Euribor interest rate –

9 months

-0.198 % 07-03-2017
Euribor interest rate –

12 months

-0.157 % 07-03-2017

The 12 month interest rates stand at -0.157%. The current ECB deposit facility rate is -0.4%, This means market expects the ECB to hike rates by 25 bps in the next 12 months.

In my opinion, there is a risk that the rate hike will be delayed to Q4, 2018 as taper would put downward pressure on the inflation expectations.

Slight dovish tilt in Fed minute, June rate hike odds intact, GBP/USD looks heavy

The Fed minutes revealed nearly all policymakers favour starting balance sheet shrinking in 2017. The markets are yet again taking this story lightly. The yields should trade higher than where they are…
I see few commentators saying the Fed is not sure about the June rate hike. This is because the minutes say the policymakers feel it is better to wait for more evidence of Q1 slowdown being transitory before moving rates higher.
The comment is indeed dovish, but the markets aren’t taking this seriously either. The CME FedWatch still puts the probability of a June rate hike at 78%. Ahead of the minutes release, the probability stood slightly above 80%. So not a significant change…

GBP/USD looks heavy
Daily chartGBPUSD D1 (05-25-2017 0015).png
A bearish RSI divergence means the rally from the March low of 1.2109 has found a temporary top above 1.3048. The multiple failures to hold above 1.30 seen in the last few days also indicate bullish exhaustion. The RSI has moved out of the rising trend line as well.
Despite this the bears haven’t really had a big day.
A small rising channel is still intact and is seen offering support around 1.2890-1.29 levels. A break lower in favour of a bigger rising trend line support of 1.2810-1.2820 could be seen.
The pair looks heavy in the short-term, but the mid-term outlook remains bullish as long as the rising trendline remains intact.