BoC Stays Hawkish
The BoC kept its policy stance unchanged on Tuesday, disappointing the CAD bears. The overnight lending rate was held at 1.0% as expected, but more importantly the central bank maintained that some “modest withdrawal of monetary policy stimulus will likely be required over time”. GDP growth forecast for 2013 was unchanged at 2.3% while core inflation is expected to reach 2.0% by mid-2013. Though the statement noted that housing activity will continue to decline, household debt burden is expected to rise further – persuading the BoC to continue its hawkish bias despite acknowledging that persistent CAD strength is negatively affecting exports. USDCAD fell sharply following the statement but regained some of its losses as overall risk appetite weakened. Equities both in the US and Europe traded in red as investors shunned risk. USD and JPY gained across the board and EURUSD fell below 1.30 during the New York session. BoE Governor King continued to sound dovish as he noted that the MPC stands ready to “inject more money into the economy” should the recent positive growth signs fade. GBPUSD dropped by about 60 pips overnight. Ahead today, the Fed and the RBNZ will have their policy meetings. We do not expect any change in policy from either of the central banks. Today’s FOMC calendar does not include a press conference or the release of the members’ economic projections, and as such the focus will be on the FOMC statement. ECB President Draghi is scheduled to have a closed-door meeting with the German lawmakers, followed by a press conference at noon (GMT). The BoC’s monetary policy report and BoC Governor Carney’s press conference will probably offer further insights into the BoC’s continued hawkish bias. On the data front, Q3 Australian CPI, October PMIs in the Eurozone and the IFO survey in Germany will be in focus.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank