5 June 2012 14: 03 GMT the Central Bank to take: Canada maintains its reference to 1.00% rate > the global growth Outlook weakened while Canadian growth is less balanced and Inflation is Well-anchored > CAD slips against major peers


When monetary policy meeting today, the Bank of Canada decided to maintain the interest rates to 1.00% for the thirteenth time in a row, extending its longest break since the 1950s. The target rate has remained unchanged since September 2010, after three consecutive increases of 25% 0.25 basis points. Decision of the Bank of the Canada rate was not surprised the market that it corresponded to the median projections of Bloomberg News survey. The discount rate is proportionally 1.25% and the deposit rate is 0.75 per cent.
The Bank cited weak prospects for global growth and domestic growth slower than expected as the main reasons to defer interest rates increase. As the Bank released its April monetary policy (MPR) report, the global economiccondition has deteriorated in recent weeks. Risks around the European crisis has intensified, including political unrest in Greece and its possible exit of Euro, the fears of banking crisis in Spain and the threat of contagion of debt in the euro area. In addition, the American economy continues recovery at a modest pace and especially in emerging market economies have slowed.
At last Friday's GDP report showed that the economy expanded at an annualized rate of only 1.9% to 2.5% Central Bank forecasts and has remained unchanged since the fourth quarter, growth. The composition of growth has become "less balanced" housing activity is stronger than expected but households continue to add to their burden of debt the modest revenue growth.On the price front, inflation appears to have entered a period of stability with the basic price index should be the objective of 2% of the Bank.
The Bank reiterated in his statement that "persistent force currency" dollar Canadian has been an ongoing challenge for tenth largest economy from domestic currencies of the world reduces foreign demand and hurt net exports. Responsible Canadian policies have continued to support wait them and observe everything to agitate on any withdrawal of this stimulus considerable of monetary policy in economic expansion continues and excess supply is gradually absorbed. "The calendar and the degree of any withdrawal will be"weighted carefully"against national and global economic developments", pointed out the Bank.
Chart 1-minute USDCAD: 5 June 2012
Graph created with strategy trader - prepared by Trang Nguyen
In the minutes following the decision of the Bank of Canada rates, the Canadian Mint immediately reduced gains against its major currencies. As is the 1-minute chart above, the pair USDCAD removed about 40 pips 1.0375 1.0420 within five minutes. Apparently, current weakness in the global economy and stable inflation curbing speculation on if interest rates increase soon. During the writing of this report, the New Zealand dollar was transferred to $1.0375
-Written by Trang Nguyen, DailyFX research team of DailyFX.com
Contact Trang, by e-mail at tnguyen@dailyfx.com
DailyFX provides news forex and technical analysis on trends affecting the world market currencies.
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5 June 2012 14: 03 GMT

>> Yen Weaker on Dovish BoJ, Pound Stronger on Increasingly Hawkish BoE

Fundamental Headlines

- Jobs Data Simultaneous Release Jeopardized Under Curbs – Bloomberg

- Jordan Named SNB President Takes up Fight to Defend Franc – Bloomberg

- Argentine Move to Seize YPF Spoils Sinopec Deal – Reuters

- German Two-Year Debt Costs Hit Low – WSJ

- IMF Says Recovery Remains Fragile – WSJ

European Session Summary

While price action in the Asian session was clearly constructive and supportive of risk-positive sentiment, European traders brought a different attitude to work on Wednesday and the progress made by higher yielding currencies and risk-correlated assets was soon wiped out. The biggest moves come from the British Pound and the Japanese Yen, which, like the Canadian Dollar, have seen some indications of significant policy moves in the coming months from their respective central banks.

In terms of the Japanese Yen, it was the weakest major currency midway through the Asian session by a wide margin – the USDJPY had climbed by at least 0.60 percent – as Asian market participants seemingly rejoiced and chased the outstanding rally by the S&P 500 on Tuesday (its best in one month). The desire to trade in the low yielding currency for higher yielding assets was further supported after the Bank of Japan suggested that more easing may be necessary, even as the global economy shows signs of progress.

BoJ Deputy Governor Kiyohiko Nishimura’s comments that the BoJ is “committed to implementing additional easing measures, if deemed necessary” support recent technical moves by the USDJPY, which are starting to suggest that the USDJPY correction is finished and we’re set for the next major leg higher. If the BoJ is planning on implementing additional easing – seemingly ready to intervene at a moment’s notice – the Japanese Yen will weaken under the threat of this verbal intervention.

Like the Yen, the British Pound has been tossed around by market participants struggling to discern the direction of the Bank of England’s monetary policy. However, unlike the Yen which remains under pressure given the BoJ’s dovish stance, the Pound found significant support earlier in the day after the Bank of England minutes showed that Monetary Policy Committee member Adam Posen abandoned his stance for more easing. If the BoE is going to withdraw stimulus measures, or at least at the minimum attempt to communicate its desire to normalize monetary policy, the British Pound stands to gain substantially over the coming weeks.

Taking a look at credit, there is little rhyme or reason in the breakdown of how European sovereign debt has performed; Spanish debt is among the top performers while Italian and Portuguese debt have been the leading decliners. We now look to the 10-year Spanish bond auction tomorrow to see how confident market participants are in the Spanish government’s reforms.

GBPUSD 5-min Chart: April 18, 2012

 

Charts Created using Marketscope – Prepared by Christopher Vecchio

Overall, the British Pound was the best performing major currency after the BoE minutes, gaining 0.32 percent against the US Dollar. All of the other majors fell against the US Dollar with the Japanese Yen and New Zealand Dollar leading the decliners, down 0.61 percent each. The Swiss Franc is also weaker, down 0.50 percent, after SNB President Thomas Jordan reaffirmed the SNB’s commitment to the EURCHF floor.

24-Hour Price Action

24-Hour Price Action

Key Levels: 12:55 GMT

 Key Levels: 12:55 GMT

 Thus far, on Wednesday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading higher, at 9968.49 at the time this report was written, after opening at 9939.85. The index has traded mostly higher, with the high at 9971.80 and the low at 9936.81.