The US dollar is broadly firmer though the Antipodean currencies continue to enjoy residual strength. The Canadian dollar is not being dragged up with them on account of Bank of Canada meeting today.
Although Governor Poloz dampened expectations for a cut with last week's reiteration that the January rate cut was an insurance policy to buy time. Yesterday's somewhat firmer than expected Q4 GDP (2.4% vs 2.0% consensus) would have seemed to have solidified such expectations, the details were less encouraging, keeping some wary of a cut today. Inventory accumulation accounted for 0.4 percentage points and the two sectors the central bank has identified as key for the recovery, investment and exports both fell.
The US dollar has been carving out a large triangle pattern against the Canadian dollar since the end of January. The bottom of the triangle is flattish around CAD1.2450. The top is marked by a falling trend line that coming in now near CAD1.2620. We look for an eventual break higher.
Earlier today, India surprised the market with another 25 bp rate cut (to 7.50%) between central bank meetings. The timing surprised the market, and it seemed to be at least in part to a response to the recent budget agreement. China, which cut key lending rates over the weekend, followed up today with a cut in the short-term lending facility. The overnight rate was cut 50 bp to 4.50%, and the 7-day repo rate was cut to 5.5% from 7%.
Turning to the other BRIC countries, note that Brazil is widely expected to hike the Selic rate later today by 50 bp to 12.75%. Russia's central bank meets at the end of next week, and many are looking for it to cut its key rate, which stands at 15%, having peaking at 17% before the late January cut.
Japan, UK, and the eurozone reported somewhat disappointing service PMI figures. Japan's was the most disturbing. It fell to 48.5 from 51.3, the lowest since April 2014. The eurozone service PMI slipped to 53.7 from the 53.9 flash reading. It is still higher than the January's 52.7 reading. Hence, the report does not undermine the idea that the region is finding better traction.
