Sterling jumps sharply today as the BoE meeting minutes were not as dovish as markets expected. Andrew Sentence voted for an immediate 25bps hike for the third time in the August meeting. While the minutes mentioned that he committee considered arguments in favor of a further easing and there were also arguments in favor of a small increase in bank rate. Overall, committee members voted 8-1 to maintain the bank rate unchanged at 0.5% and the asset purchase program at 200B pound. Although inflation has overshot the central bank's upper threshold, it will drop below the 2% target in 2 years' time, thereby reducing the urgency to tighten monetary policies. More in BOE Voted 8-1 To Leave Policy Unchanged.
While a former top currency official in Japan, Mr Yen Eisuke Sakakibara said we shouldn't be too much worried about the yen being 85 or 80 at this moment, a ruling party lawmaker urged the government to intervene to weaken yen to 95 per dollar. Yoichi Kaneko, a Democratic Party of Japan upper-house lawmaker, said that intervention is necessary to show that the government cannot accept the current level. And, the lack of action from BoJ showed a lack of sense of crisis to the export led economy.
While the markets are generally steady, noticeable strength is seen in the Canadian dollar today. Analysts believe that Loonie's strength could be attributed to the $40b bid from BHP Billiton, the world's largest mining company, for takeover of Potash Corp. of Saskatchewan. The news help push USD/CAD through 1.03 level and put parity back into focus. However, the Canadian dollar will remain sensitive to risk sentiments as well as vulnerable to a poor CPI report later on Friday.
AUD/CAD's retreat from 0.9460 dragged daily MACD below signal line and suggests that a short term top is formed. We'd see AUD/CAD retreat further for a test on 55 days EMA (now at 0.9193). However a break of 0.9108 support is needed to signal reversal. Otherwise, Canadian dollar's relative strength would probably be temporary only and we'd see it restart to underperform Aussie later.
USD/CAD Mid-Day Outlook
Daily Pivots: (S1) 1.0272; (P) 1.0355; (R1) 1.0401; More.
USD/CAD's fall from 1.0493 extends further to as low as 1.0271 so far today. The break of 1.0296 support indicates that rebound from 1.0106 has completed at 1.0493 already, limited below the near term trend line resistance. Intraday bias is mildly on the downside for 1.0106. Nevertheless, note that after all, USD/CAD is staying in consolidation in converging range. Strong support should be seen around parity to contain downside. On the upside, above 1.0340 will turn intraday bias neutral again.
In the bigger picture, USD/CAD is still staying in sideway pattern in converging range. Nevertheless, such pattern should be close to completion. On the upside, a break of 1.0675 resistance will indicate that whole rally from 0.9929 low is likely resuming for another high above 1.0851. On the downside, below 1.0106 will suggest that another low below 0.9929 would be seen. But after all, considering bullish convergence conditions in weekly MACD, we believe that medium term decline from 1.3063 is going to reverse soon and focus will be on reversal signal even in case of another fall.