The Fed to meet this week and may give the USD a lift, but we continue to expect CAD gains
Canadian Dollar – Weekly Range (1.2250 to 1.2530)
The Bank of Canada’s decisions to taper its QE program of bond purchases, and to signal an interest rate rise around June of 2022 seemed well-received by the market. Analysts forecast further CAD gains over the medium term. Analysts predict that inflation will remain above 4% throughout 2022, even though the BoC insists high inflation is transitory and will drop throughout next year. Some analysts speculate that the BoC will shift gears and start rate hikes in January. Canadian payroll data will also be shared on Friday, October 5th.
Canada’s Real GDP was up by 0.4% in August, while the market was expecting a rise of 0.7%. Labor shortages and supply chain bottlenecks are cited for the lack of growth, and there are reports that it will take until Q32022 until the output gap closes. WTI oil prices sank last week, and after hitting a high of around $84.75. Expect more volatility in the oil markets in the coming week which should have a significant directional impact on the loonie.
Euro: Weekly Trading Range (1.1450 to 1.1710)
ECB President Lagarde and her associates met last Thursday, and analysts felt her remarks were much the same as the last meeting. The ECB seems convinced that inflation levels will ease in 2022 without strong moves towards interest rate hikes. Some analysts feel that Eurozone growth has peaked for now, and they are neutral towards the shared currency with a risk of stagflation across the eurozone.
GDP growth in the European Union varied, with France beating forecasts by about a percentage point. Germany (1.8%) and Spain (2%) both missed their growth forecasts. The Eurozone economy grew by 2.2% quarter over quarter, and 3.7% year over year. Manufacturing and services PMI numbers (Tuesday/Wednesday), retail sales (Friday) and unemployment (Wednesday) numbers will take up most of the EU’s currency market attention this week.
British Pound: Weekly Trading Range (1.3510 to 1.3810)
The Bank of England will meet Thursday and share its decisions on interest rates. It will also the discuss timeline and value of the UK’s QE program. The currency market is pricing in a 15 basis-point interest rate hike announcement on Thursday.
The BoE is also expected to announce whether its forecast 6.5% growth prediction is still realistic. High energy costs, labor market shortages, and negative sentiment around hostile post-Brexit relations with EU nations continue to weigh on the UK economy.
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