It’s a double blow for the Canadian dollar as the previous week saw the much talked about Iranian deal finally reach an agreement. This opens the gates for the production and release of 1.25 million barrels of oil on a daily basis.
With oil prices at lower levels due to oversupply and overproduction, as well as the proxy fight between Saudi Arabia and the US over the shale oil production, the Bank of Canada faces a tough decision for Wednesday: to cut or not to cut rates. Major research think-tanks interviewed economists, and opinions were split in a fifty-fifty ratio regarding a possible rate cut by the Bank of Canada… and then the release came.
Not only were they going to cut the rate overnight, but the overall tone Mr. Poloz used at the press conference to follow was extremely bearish on the Canadian dollar as well as on the Canadian economy as a whole.
When it comes to interest rate decisions, most of the time the press conferences are way more important than the actual decision. In this case, it proves to be the same, as during the conference the Canadian GDP for the 2nd quarter was slashed from 1.8% all the way into the negative territory and, to the surprise of the vast majority of market participants, Poloz, the Bank of Canada’s Governor, even talked about the possibility of introducing Quantitative Easing (QE) in the near future.
Just like that, one of the last bastions of modern and strong economies, Canada, is talking about joining the QE frenzy. Another one bites the dust, as some may say.
Needless to say that the Canadian dollar was virtually demolished with the USDCAD rising all the way to above 1.29 and flirting with the 1.30 level.
The move was/is even more visible on the GBPCAD cross which rose above the all-important 2 levels, in what seems to be a decisive blow to bears.
The Bank of England’s Carney gave GBPUSD bulls an unexpected boost when declaring that rates in the UK will rise sooner than market participants are expecting. This created an environment in which the GBPUSD refused to move to the downside while USDCAD, continued its move higher. It was only normal for the GBPCAD cross to jump the most.
Moving ahead, the focus is shifting slowly on to the USDJPY pair, to see if the 125.60 area highs are going to be broken now that the USDCAD made new highs.
I would say it is more difficult for the USDJPY to do that, but in trading, you must learn to say “never say never”.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
