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Poloz Creates Confusion but USD Still Bids Against Loonie

Published October 25, 2016
  • USDCAD remains relatively buoyant above the 1.33 handle this morning after hitting a 7-month high yesterday, just shy of 1.34
  • Comments late yesterday from BoC governor Stephen Poloz provided additional volatility as USDCAD plunged into the upper 1.3200's just before the close
  • He initially mentioned that the best course of action would be to "wait another 18 months" which the market seemed to interpret as backing away from the rate cut discussion he mentioned last week
  • He clarified that he was not talking about monetary policy per se, but rather referencing the time frame for the output gap to close 
  • This seems to have calmed the market down somewhat although the lack of consistency from the country's most important banker is worrisome in itself
  • His insistence on clarifying his comments leads us to believe that he does hold a definitive easing bias and wants to keep that option available going forward
  • Oil is slightly lower on the day but still holding on to the $50 handle for WTI thus far
  • The prospect of reaching a production deal amongst OPEC producers next month in Vienna is still a possibility although the path is looking more precarious as four members are now asking for exemptions
  • Iran, Iraq, Libya and Nigeria are looking to be excluded from any deal, which will shift the onus to Saudi Arabia to ensure any quota agreement is enforced; this seems a bridge too far to gap, at present, given Saudi Arabia's two-year fight to gain market share by increasing supply
  • Economic data today is light with the US reporting housing data at 9am ET and Consumer Confidence at 10am ET
  • Friday remains key with the US delivering the market’s first look at GDP figures for Q3
  • The bias in USDCAD remains higher with the next major level of USD resistance coming in at 1.3575, so prepare as best you can!

Charts: (1) USDCAD breaks out to the topside. (2) Fed rate hike odds above 60% for Dec. (3) Economic Calendar.