BoC In Focus
Limited data releases in the US saw currencies trade in ranges on Monday during New York hours. USDJPY inched closer to the 80.0 level as JPY weakness continued following a weak September trade report (which showed exports fell by 10.3% y/y) and news reports which suggested that the BoJ is leaning towards more easing in its October 30 meeting. We note that that the BoJ should expand its Asset Purchase Programme at least by another JPY10 tr to have a material impact on USDJPY at the current levels, as most of the news is already priced in. Meanwhile, S&P warned that a Japanese downgrade is likely if medium-term growth prospects fall from its projected 1.1% or if the government’s debt trajectory does not change its course. Political risk in Greece reemerged after two lawmakers, who were part of the ruling New Democracy party, quit in opposition to the government’s austerity measures. Though the Greek government still has the majority and is not under threat for now, it puts pressure on the government as it negotiates with the EU to get the next tranche of aid. Moody’s downgraded five Spanish regions while affirming the ratings of five other regions. Catalonia was cut to Ba3 from Ba1 while two regions (Andalucia and Extremadura) were cut to junk. EURUSD traded in the 1.3042 – 1.3084 range during the New York session. Ahead today, the BoC’s policy meeting will be in focus. We expect the BoC to keep its overnight lending rate unchanged at 1.0%, but after the soft Canadian CPI report released last week, we cannot exclude the possibility that the explicit tightening bias may be watered down in the policy statement – which could push USDCAD back above parity. Also on tap today are the retail sales report in Canada and BoE Governor King’s speech.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank