Go long on CAD or short on USD
By Peter Rosenstreich
At today’s upcoming Bank of Canada monetary policy meeting, we expect a 0.25% interest rate hike. A clear intent of further tightening – either today or in October – will catch markets behind the curve, with only 0.65% of hikes now priced in to the end of 2018. A USD/CAD downtrend is still in play, with a break of 1.2414 signalling a bearish extension to 1.2128.
The Canadian economy has accelerated for multiple quarters, and expectations for inflation should persuade the bank to act now. However, the central bank might hold rates for now, due to concern over high household indebtedness.
Equities tumble, but safe havens subdued
By Arnaud Masset
Global equities tumbled on Wednesday, but the sale proceeds did not funnel straight into safe havens. As tensions over North Korean flared, the Japanese Nikkei was down 0.14%, Hong Kong’s Hang Seng was down 0.60% while in Taiwan the Taiex slid 0.66%. In Europe the Euro Stoxx 50 was down 0.30%, the DAX fell 0.20% and the CAC 40 slipped 0.27%. Nonetheless, demand for safe-haven assets remained subdued. Gold was even edging lower, down 0.20% to $1,337 an ounce. The Swiss franc and Japanese yen were trading sideways.
Investors do not where to stand, and are increasingly impatient to get off this rollercoaster. Tomorrow they might find their incentive, as European Central Bank President Mario Draghi is expected to lay out his monetary policy plan then.
Singapore signals emerging-market growth
By Peter Rosenstreich
Despite negative geopolitical headlines from North Korea and the Middle East, Singapore’s surging economy exemplifies the growth in emerging markets. According to the Monetary Authority of Singapore’s (MAS) quarterly near-term outlook, “Recent Economic Developments in Singapore”, the outlook for the global and domestic economy is optimistic. Particularly hot is the electronics industry, with its “firm external demand conditions, coupled with the upturn in the global IT cycle, will continue to impart positive spillovers.” The MAS report upped its growth projections for the 11 ‘Global Growth Generating Countries’ in 2017 and 2018 to 1.9% from 1.8% in its June report.
Aussie drifts ahead of US Fed comments
By Arnaud Masset
Although AUD/USD fell on disappointing economic news from down under, it is expected to trade within its multi-month channel (0.7787-0.8066) until the US Federal Reserve’s next pronouncement on monetary policy, due on 20 September
The Australian dollar took a hit overnight amid disappointing growth figures. The GDP grew 1.8% year on year, below the 1.9% expected by most economists. On a quarter-over-quarter basis the economy grew 0.8% compared to an 0.9% median forecast. A dark spot in the landscape is the drop in household saving ratio from 5.3% in the March quarter to 4.6% in the June quarter, while at the same time household spending increased 0.7% quarter on quarter. This raises the question as to whether growth is sustainable in the medium to long-term, and if not, when it will kick back growth as Australians start to save money again.