Dollar Flat; Loonie Drops Before BoC

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Dollar Flat; Loonie Drops Before BoC

OCTOBER 27, 2021

The U.S. dollar remained steady but was unable to mount any significant gains despite a lower global risk appetite.

Overview

Instead, the safe-haven Japanese yen and Swiss franc found more support.  European and Asian shares are in the red this morning and U.S. stock futures are slightly lower.

This morning’s data showed that U.S. durable goods decreased 0.4% in September.  While not a good print by any stretch, it still beat expectations of a 1.1% contraction. A separate report showed that wholesale inventories came in a touch better than expectations.  There is no further top-tier data on the domestic docket so we will shift our attention to developments abroad, especially the Bank of Canada monetary policy decision.

Earning’s season continues and is likely to have an impact risk sentiment which might funnel up to the dollar’s fate.

What to Watch Today…

  • Bank of Canada at 10 a.m.

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EUR

The Euro rebounded against the British pound but it is mostly unchanged versus its American counterpart, despite the growth forecast being cut for the region’s largest economy.  The German government announced it expects growth this year to be significantly weaker than previously estimated.  They cut the outlook to 2.6% compared to 3.5% that they had predicted at the end of April.  The Economy Minister cited lingering effects of the pandemic, rising energy prices, and the supply chain crunch as the culprits.

Germany did get some good fundamental data.  German consumer confidence rose slightly and beat expectations despite rising inflation pressures.    From a Euro perspective, the good news was canceled out by French consumer confidence which lagged in November.

CAD

The Canadian dollar is 0.2% weaker to start the morning will all eyes on the Bank of Canada’s decision later this morning. The price of oil retreated overnight, likely causing the loonie to lose some strength.

At 10 a.m., the Bank of Canada will release its monetary policy decision. The central bank is expected to reduce weekly government bond purchases by half.  If they do so, it would mark the fourth time over the past year that they have “tapered” their emergency stimulus.  A few analysts believe that the Bank could go as far as announcing the end of bond purchases altogether, which we see as unlikely.   At 11 a.m., BoC Governor Tiff Macklem will hold a press conference to explain the decision.  Traders will be looking for clues as to when the Bank of Canada will raise interest rates, which is currently priced in for April of next year.

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