Forex Today: Bank of Canada Dovish on Inflation

For the first time in many months, the Bank of Canada leaves its interest rate unchanged, and confidently predicts inflation will fall further to 3% by mid-2023.

  1. At its monthly policy meeting yesterday, the Bank of Canada left its interest rate at 4.5% and stated that it expects inflation to continue to fall, as it has been doing for some months, to reach a level as low as 3% within just a few months. Following the meeting, the Canadian Dollar is trading lower, and is continuing to weaken.
  2. Fed Chair Jerome Powell testified before the US House of Representatives yesterday about the Federal Reserve’s monetary policy. He was a little less hawkish than he had been the previous day in front of the Senate. However, the US Dollar and yields remained strong, at least for a few hours in the case of the Dollar. The US 2-Year Treasury Yield made a new 15-year high at 5.085%.
  3. The US Yield Curve is inverted by more than 1% for the first time since 1981, when it was seen as a sign of a strong recession. The 10-Year Treasury Yield is more than 1% below the 2-Year Treasury Yield, leading more economists to expect the US economy will soon tip into a recession. However, this is belied by stronger than expected JOLTS job data and the ADP non-farm employment change forecast, which is suggestive of a still-robust US economy.
  4. In the Forex market, the Japanese Yen is the strongest major currency, while the Canadian Dollar is the weakest. This puts the CAD/JPY currency cross in focus today.
  5. The Fed’s hawkish expressions are pushing up US Treasury Yields, with the 2-Year trading at a new 15-year high above 5% and looking likely to rise higher still over coming days. This may bring an opportunity to trend traders who can access this asset, whether through a CFD or through the relevant micro future. \
  6. Some commodities are performing very well, with a few continuing to rise after having recently made significant bullish breakouts, notably Sugar and Cocoa.
  7. There are no high-impact data releases scheduled today, so markets are likely to be relatively calm.
Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.