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Greenback defensive – all eyes on the BoC and Federal Reserve.

Albert Edwards
by Albert Edwards on October 28, 2019


U.S. dollar highlights:

USD stable on trade optimism with China after positive comments from President Trump about progress. Both sides have negotiated a truce in their trade dispute and has increased optimism a deal will be finalized soon. Geopolitical events including protests in Hong Kong, increased tensions in the Middle East and the ongoing trade war with China have weighed on USD and caused volatile markets. Increased economic and global uncertainty also causing investors to the safety of bonds. All eyes on the Federal Reserve interest rate decision on Wednesday. A 25-bps rate cut is already priced in; however, markets will focus on when more cuts are expected and if the Fed cuts 50bps instead.

Canadian dollar highlights:

CAD stronger after steady oil prices on lower U.S. crude inventories and optimism over a trade deal with China. In addition, possible action from OPEC and its allies to extend output cuts also supporting CAD. Prime Minister Justin Trudeau also promised to continue with the Trans Mountain pipeline expansion and this will allow more of Canada’s oil to international markets. Trudeau also promised a tax cut for the middle class after his Liberal minority party win last week. The Bank of Canada is expected to hold interest rates on Wednesday and markets will also focus on the dovish press conference expected by Governor Stephen Poloz.

Euro highlights:

EUR weaker and defensive after a survey from the central bank showed that expectations for inflation and economic growth were cut for the next two years. Inflation projections were reduced by 0.2% for 2020 and by 0.1% for both 2019 and 2021; meanwhile, Core inflation was reduced to 1.6% (from 1.7%). During President Mario Draghi’s last speech, he said that “weaker growth momentum” was affecting wages and inflation while justifying the decision to restart quantitative easing and cutting interest rates. New President Christine Lagarde takes over next month and is expected to continue cutting interest rates. All eyes on GDP Growth Rate for Q3, Unemployment Rate for September and Consumer Prices for October all available on Thursday.

British pound highlights:

GBP remains defensive after the European Union waits to for Parliament members in Westminster decide on Prime Minister Boris Johnson’s call for a snap election. The European Commission has agreed to delay the October 31 Brexit deadline, but they are still undecided on the duration. Council President Donald Tusk agreed with Johnson’s request to extend until January 31, 2020; however, France President Emmanuel Macron wants a shorter delay. Meanwhile, Labour party leader Jeremy Corbyn said he would support an election only if Johnson committed to removing his threat of a no-deal Brexit.