The surprising rate cut by the Bank of Canada sent the C$ free-falling with USD/CAD already rising over 300 pips to 1.2366 at the time of writing.
But the loonie is not alone: the Australian and New Zealand dollars are sliding as well, in a commodity currency solidarity move if you wish:
CAD
The Canadian dollar was impacted by oil: the falling price lowers the level of inflation but also Canada’s important export. Stronger demand from the US and a low unemployment rate did not prevent the surprising move from Ottawa.
The Bank of Canada usually only focuses on reflecting on the economy: changes in rates are not that common. Some had expected a dovish tone but not an immediate cut. Poloz said that the move was an “insurance policy”. Is he afraid of further deterioration?
AUD
AUD/USD is struggling to hold onto 0.81: stronger than expected Chinese GDP, an upbeat jobs report in Australia and other positive domestic figures kept it away from the 0.80 abyss.
But can it hold on for long if the US dollar continues rising. With central banks introducing more easing policies, the speculation is mounting regarding the RBA: they meet in early February after a break in January, and Stevens could follow Poloz with a rate cut. At 2.5%, there is room for cuts in Australia.
NZD
NZD/USD is trading below 0.76, a level unseen for a long time. Also here, we had strong economic numbers from the island nation: low unemployment, a healthy housing market and rising prices of milk.
However, it’s not only dairy products: the level of inflation reported yesterday, something that occurs only once per quarter, dropped by 0.3% m/m, well below expectations. This not only calls to question the current tightening cycle, but perhaps opens the door to rate cuts. New Zealand has an interest rate of 3.5% and Wheeler could join others in the race to the bottom.
More: Dollar Strength To Continue With Shift In Drivers – Goldman Sachs
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