Although having pared some of its gains over recent trading sessions, the Canadian dollar remains close to its strongest level over the past month against the US dollar. Bank of Canada Governor Tiff Macklem spoke yesterday to a Senate Committee in Ottawa, where he re-iterated the Bank’s view that further interest rate hikes will be needed. Macklem did emphasise that “how much further rates go up” would depend on “how monetary policy is working”, emphasising the Bank’s intention to react pragmatically to economic data. Nothing on the economic calendar for Canada today means that movement on the currency will likely come from reaction to tonight’s US Federal Reserve announcement.
US economic data painted a mixed message yesterday. The Institute for Supply Management manufacturing report showed that whilst activity remained a healthy 50.2% reading- whereby above 50% indicates expansion- customer inventories were low, and price pressures in the sector were decreasing. However, a report on the number of job openings unexpectedly rebounded to 10.7 million, up 400k from September. Higher job availability is associated with wage increases, as companies compete over limited labour supply. Despite the complex picture facing the Federal Reserve in its attempts to control inflation, the tilt in FX markets yesterday was a cautious ‘risk on’ theme, whereby perceived ‘riskier’ currencies strengthen. This indicates that markets are increasing bets that the Federal Reserve will tone down expectations regarding further interest rate hikes when it announces its latest monetary policy decision tonight, which is widely expected to see the base rate increase from 3.25% to 4%.
With yesterday being a public holiday in several eurozone states, and no fresh economic data being released, the single currency continued to drift slowly lower. Interest in the single currency should pick up today, however, as this morning see’s a raft of manufacturing data being released, alongside German unemployment data, and an update on the French government budget.
A quiet day for the pound yesterday, with the the only data point of note being the release of the British Retail Consortium’s monthly shop price index. A minor measure of inflation, the 6.6% month on month reading for the data point showed its shop inflation index to be the highest level since inception 17 years ago. However, with the absence of any top tier data today either, markets remain poised for tomorrow’s Bank of England interest rate decision. A 75 basis point hike, to raise the base rate to 3%, remains the consensus expectation.