Adding more risk

March 9, 2016

There are a couple of central bank decision to watch today, primarily Canada at 15:00 GMT. The Canadian economy has gone through a rough ride recently, with recent indicators suggesting some stabilisation, but concerns remain and the market is pricing the risk (around one-third) that rates are cut this year. The recent reversal of the currency is also a factor likely to be discussed at the meeting today, given the Canadian dollar is nearly 10% higher vs. the US dollar from the USDCAD highs seen in January. This makes it the strongest major over this period, but the recovery is not surprising given the changes to the risk environment and oil price over this period. It’s going to be the tone of the statement that determines the currency reaction. For New Zealand, the scope for a near-term move is a lot less, although there are a couple of institutions in the market thinking that they will cut rates from the current 2.25%, so it’s worth keeping an eye on the outcome.

Eslewhere, we are seeing a modest bid on the dollar at the start of the European session, with this being seen most notable on the risk currencies, such as the Aussie, which is pushing towards the 0.75 level. On the other side, USDJPY hardly moving. The single currency is more reluctant to join in ahead of tomorrow’s crucial ECB meeting, where further policy measures are expected.

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