Loonie Dragged Down By Oil Ahead Of BOC
ActionForex | Jan 20, 2016 03:42AM ET
Asian markets are under renewed selling pressure as oil price decline extends. Also, worries over China's slowdown persist. At the time of writing, Nikkei is trading down -2%, HK HSI down -3% while China SSE (L:SSE) composite is down -0.7%. WTI crude oil had a brief recovery yesterday but sellers quickly jumped in again. WTI extends recent down trend to new 12 year low and hit as low as 27.92 so far. Commodity currencies are all back under pressure again. Canadian dollar suffered further selloff just ahead of BoC rate decision. New Zealand dollar tumbles on weaker than expected inflation data. Aussie is also weighed down by talk of RBA rate cut. Meanwhile, Yen is back in the driving seat on risk aversion while dollar is mixed.
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Recent intensification in the selloff in oil is pressure BoC to cut rates again. It's expected that the central bank would hold their hands today and keep interest rate unchanged at 0.50%, and signal the possibility of a cut. Yet, BoC could surprise the markets by cutting rates today. After all, it's seen inevitable for more loosening by BoC considering the depth and speed in oil's free fall. EUR/CAD powered through 1.5585 resistance this month to resume the long term up trend from 1.2126. It should be noted that Euro has been rather steady against dollar since December. We'd expect EUR/CAD to follow USD/CAD higher and target 100% projection of 1.2126 to 1.5585 from 1.3019 at 1.6418 in medium term.
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New Zealand CPI dropped -0.5% qoq in Q4, much worse than expectation of -0.2% qoq. Annual rate also dropped sharply to 0.1% yoy versus expectation of 0.4% yoy. That's also the lowest annual rate since late 1999. There are talks that the weak inflation reading would pressure RBNZ to cut interest rates further this year as it's moving further away from the 1-3% target. Some expected RBNZ to lower the OCR, currently at 2.50%, to as low as 2.00% by middle of the year. NZD/USD's break of 0.6427 support this month indicates that the correction from 0.6102 has low has completed at 0.6881 already, well below the falling 55 weeks EMA. We'd expect further downside ahead to have a test on 0.6102.
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UK job data will be the main focus in European session. Jobless claims are expected to rise 2.0k in December with unemployment rate unchanged at 5.2%. Sterling has been the weakest European majors and would suffer more selling in case of downside surprise. German PPI, Swiss ZEW will also be released. In US session, US CPI and housing starts, Canada wholesale sales and manufacturing shipments will be released. But focus will be mainly on BoC rate decision.
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