Bank of Canada cut the interest rate

Jul 16 2015, 7:28 am
Market news

With Greece stepping out of the picture, we can safely (but still with caution) turn our attention to China, which has reported a 7% growth in its GBP for Q2, exceeding the already positive forecast of 6.9%. The industrial sector output rose 6.8% as of June year-on-year with a forecast of 6.0%.

We find the Australian landscape not so bright, the Consumer Confidence Index Westpac dropping 3.2% to its lowest since December 2014, 92.2.

Remaining in the eastern hemisphere, BoJ voted for keeping the monetary policy in check with a staggering 8 to 1 vote from the Board. As per the press release, the output and exports are on an up-going slope even though the year-to-year consumer price is on an almost straight line.

The kiwi seems to have again lost its mojo, after only one week of correction that followed the 5 year low of 0.6614. Behind this slope are both the 10.7% drop in milk prices (8th consecutive fall to be more precise) and buoyant comments of Janet Yellen (Fed’s Chair) about a steady position in USA’s forecasts for 2015. With these major influences of milk prices, in hindsight this odd commodity can be regarded as a rogue factor. Moreover, kiwi lost another 180 pips after the CPI came lower than expected, at 0.4%.

Speaking of USA, we can see that the USD/CAD has leaped to 1.2923, setting the bar for a new 6 year high and going forward on a seemingly unbeatable trend.

Bank of Canada made the decision to reduce the interest rate to 0.50% eluding again the odds, although it didn’t came as a surprise with the January cuts to 0.75% (described later on only as “small” insurance). The wider output gap and the dawn major inflation risks, this time make the decision seem a little to “reassuring”. Expectation was for the Canadians to not touch the interest rate and keep it at 0.75%, although discussions were heated before the decision. On one hand there was the poor GBP outcome – leading many to the conclusion of a lack of modification for the present session (although surely in the next one), but on the other hand the employment came out positive.

In UK, the employment data doesn’t stand up to the forecasted rates, unemployment rising with the new addition of over 7K jobless claims at 5.6%. This marks a break in the fall series, in place since 2012. More worries come from the average gaining rate up with 3.2% (under forecast); still, bonuses are up with 2.8%. Although wages continued to rise, the expectations are again under the forecasted amounts.

Janet Yellen’s press conference also took a toll on crude oil prices, pushing them even lower at $51.60. Oil might receive though an even harder blow from the Middle East, with the Iran sanctions on the verge of being lifted. We will keep you posted.

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