CAD: Short-lived impact from BoC’s “lower for longer”
USD: Rising infections and stricter containment measures appear to be partly in the price at this stage and risk assets are enjoying some stabilization after a turbulent start to the week. With less than one week before the US elections, market’s expectations around the most risk-friendly scenario (an uncontested Biden victory) have partly been scaled down and investors now appear to be pricing in somewhat higher uncertainty. A rise in USD/JPY implied volatility on the election date tenor appears to be a testament of this. Overall, G10 FX is trading in relatively narrow ranges and today’s quiet calendar will not offer any key catalyst, with month-end rebalancing flows possibly driving most FX moves.
CAD: Today’s Bank of Canada meeting is unlikely to generate much surprise, in our view. The Bank’s current policy mix of low rates and QE is arguably providing just the adequate amount of support to the economic recovery and with provincial spreads under control we see no need for the BoC to add more stimulus for now. Still, Governor Macklem will likely prefer to err on the side of caution and maintain a rather dovish tone which should take the form of a pledge to keep rates lower for longer. This should partly be expected by markets and we doubt it will have a substantial impact on CAD. What is likely to drive most currency moves will be the content of the Monetary Policy Report, and by what extent the growth forecasts will be revised. Also, we don’t completely exclude Mr. Macklem will mention negative rates as a hypothetical tool – although we deem NIRP as highly unlikely in Canada – which could have a magnified currency impact. Overall, the balance of risks for CAD seems slightly tilted to the downside but the impact should be rather short-lived.
EUR: France is reportedly set to announce a full, one-month lockdown today. Despite more stringent measures hardly coming as a big surprise to markets, the fact that Europe is once again at the forefront compared to other developed regions in imposing hard lockdowns is further feeding the process of de-rating of European growth expectations, and taking a toll on EUR. Italy has also recorded the highest number of daily deaths since May, suggesting it may follow France in a similar step, along with other highly affected EU countries.
GBP: A temporary softening in the Brexit-related news flow and an empty data calendar will likely keep GBP as a bystander in global FX dynamics. EUR/GBP to test 0.9000 if EUR shows more lockdowns-related idiosyncratic weakness.
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