News & analysis


The loonie sits marginally higher this morning with little new developments standing out. Friday’s release of February’s retail sales data saw receipts rise by 4% as public-health authorities lifted lockdowns across major provinces. This week, with the data calendar remaining light, the loonie’s focus will be on BoC Deputy Governor Gravelle’s speech tomorrow at 17:15 GMT. Markets will be looking for any indication from the Bank of Canada about future policy moves, as the prospect of tapering QE in April remains subject to a high level of speculation.


The US dollar trades firmer across most of the G10 and EM currency board this morning, with notable exceptions such as CHF and JPY. However, the greenback’s strength against G10 currencies is more tentative, with GBP and CAD also threatening to trade in the green. Generally though, market indicators are falling in line with a broad risk-off narrative as events in Turkey spillover into broader market risk sentiment. High beta EM currencies like ZAR and RUB were also knocked in early trading due to risk aversion in markets, but have since trimmed losses below 1%. Over the weekend, US clinical trials involving 32,000 people yielded results that the AstraZeneca vaccine is 79% effective in presenting the symptomatic disease. The trial is the largest conducted thus far and the results come at a critical time as confidence around the vaccine, especially in Europe, is low after questions around its efficacy and links to blood clots. This week, the focus on economic data will centre on March’s preliminary PMI release on Wednesday and February’s inflation data on Friday. Meanwhile, a wedge of planned Fed speakers will draw attention after last week’s dovish FOMC meeting. Fed Governor Brainard will likely set the tone with a speech on Tuesday, which outlines her economic outlook ahead of other notable FOMC members such as Evans and Clarida, who are set to speak later on in the week.


While the edge is being taken off of the dollar this morning, the euro remains in the red this morning, although it has closed the gap the longer its trading session has gone on. Risk around the euro remains tilted to the downside, with the single currency battling with slow vaccination roll-out and rising case count. Germany today is debating whether to extend its national lockdown for another four weeks after infections rose beyond a key level. The extension would see lockdown measures remain in place until April 18th, with the decision highlighting how the recovery is stalling in the eurozone as nations struggle to contain the virus and distribute vaccines. Meanwhile, EU leaders will meet virtually on Thursday to vote on whether to ban the exports of AstraZeneca’s vaccine from its Dutch plant. European Commission president, Ursula von der Leyen, floated the idea of tougher export controls last week. Von der Leyen stated “That’s the message to AstraZeneca: you must fulfil your contract with Europe first before you start delivering to other countries”, a comment seemingly aimed at the UK. Today, ECB member Weidmann will speak at the BIS innovation summit at 13:00 GMT.


The pound is struggling for direction this morning as the greenback remains sturdy on weaker risk sentiment at the start of the week. News over the weekend centred on the drama unfolding around the Oxford/ AstraZeneca Covid-19 vaccine. After European government’s temporarily banned the vaccine over fears of blood clots, the vaccine now comes back into the limelight as the European Commission attempts to block vaccine exports from AstraZeneca’s production plant in the Halix site in the Netherlands. The summit, which begins on Thursday, will be key for determining sentiment around British assets, which to date have enjoyed a positive dividend largely due to the UK’s promising vaccination programme. This week, Prime Minister Johnson is set to call EU counterparts ahead of the leaders’ online meeting. Officials have stated the French President Emmanuel Macron and German Chancellor Angela Merkel will likely be on the list.

FX Elsewhere

It was a case of political interference in Turkey again over the weekend as it was announced that central bank Governor Agbal would be replaced by Sahap Kavcioglu only days after the former Governor hiked interest rates by 200bps to 19% on Thursday. The Central Bank of the Republic of Turkey’s decision to hike rates was welcomed by markets, with the lira regaining ground against the dollar as the central bank evidenced its commitment to lowering the trajectory of inflation. However, the move looked to have been too politically sensitive for Ankara, leading to the departure of Governor Agbal over the weekend. Markets didn’t take the news of Agbal’s exit well, with the lira slumping 16% as New Zealand traders kick-started affairs late Sunday evening. Agbal’s commitment not only to lowering inflation but to exchange rate stability and orthodox monetary policy, was completely undermined by the politicised decision. This was reflected in the lira as it slumped to levels not seen since the peak of the pandemic as market participants questioned what the new CBRT governor can do in the position to appease both President Erdogan and foreign investors. Attempts previously to lower inflation and regain strength in the lira via both orthodox and unorthodox monetary policy mechanisms have all resulted in the firing of the CBRT governor. The level of uncertainty surrounding the policy framework under the new Governor and how effectively it can be carried out is reflected in the lira, which now trades 8% lower on the day after recouping early losses, but the risk of monetary intervention via draining liquidity conditions remains a threat for those shorting TRY. However, previous comments by the newly appointed governor give some direction as to where policy could be heading. Back in February, Kavciouglu wrote in numerous newspaper columns that higher rates will indirectly lead to inflation – an unorthodox view shared by the Turkish president. Additionally, he stated that the lira is being kept artificially strong, resulting in a lack of competitiveness for Turkish exports. These initial comments suggest that the CBRT could now lean towards lowering rates as opposed to the previous commitment to maintaining a tight monetary policy stance to lower inflation, all the while allowing the exchange rate to run at a lower structural level.



DISCLAIMER: This information has been prepared by Monex Canada Inc., an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Canada Inc., or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.