What Will The BoC Signal?
Ashraf Laidi | Sep 09, 2021 12:55AM ET
by Adam Button
Wednesday's Bank of Canada decision is a bit of a placeholder because they were never expected to taper this month, but markets will be carefully looking for signs of an October taper in the statement. There is unlikely to be a surprise as there is no press conference scheduled for today. The US dollar is stronger across the board except against NZD and JPY. Loonie is again the weakest, but is stabilizing. A US 10-year auction could also be market moving later today.
The BOC has led markets to believe it will taper every second meeting; so after tapering to $2 billion from $3 billion in July, today's meeting is expected to be a non-event meeting.
Nonetheless, this is an opportunity for Macklem to pre-emptively hint that a taper isn't coming in at the Oct.27 meeting, or put that squarely on the table. However the reasons for doing that are outweighed by the reasons to wait and see.
The main negative developments since July have been the delta wave in the US and the major disappointment in Q2 Canadian GDP along with the July preliminary estimate. A major drag has come from slower housing sale activity and lower exports due to automotive bottlenecks – two issues that are likely to persist.
At the same time, Canadian vaccination rates are high and the current reopening outlook is good. Perhaps most importantly, Canada is two weeks away from an election and emphasizing a slowdown and halting the taper could be viewed as political meddling.
The most likely outcome is that the BOC highlights renewed uncertainty but maintains the already-vague guidance on QE, which says that “decisions regarding further adjustments to the pace of net bond purchases will be guided by Governing Council's ongoing assessment of the strength and durability of the recovery.”
Given Monday's dump in the loonie, that might be enough to draw a line under the currency for now. Note though that Macklem will also speak on Thursday and could fine-tune the message then.
In the bigger picture, the Canadian dollar was caught in a broad USD bid on Monday as Treasury yields rose. There are a number of theories on why yields have pushed up since non-farm payrolls but one is simply that it's a concession ahead of supply. $58B three-year notes were sold Tuesday, $38B of 10s are coming Wednesday and $24B of 30s are due Thursday. If demand is strong, the trend higher in yields could be short-lived.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.