European Session – Canadian dollar rises after BOC holds rates and lifts growth outlook

Michalis Florentiades, XM Investment Research Desk

Risk appetite was up in the markets today after better than expected Chinese trade data. The more upbeat sentiment shifted flows from safe havens to riskier assets and stock markets, which helped the US dollar gain versus the safe haven yen. The euro fell against the dollar.

Meanwhile, soft Eurozone data also contributed to the euro’s weakness, pushing it to its lowest since March 29 after breaking below the key $1.13 level. Eurozone industrial production data for February fell by a slightly-larger-than expected 0.8% month-on-month versus a market consensus for a 0.7% drop. January’s 2.1% gain was revised lower to show a 1.9% rise.

There were no UK data releases today and focus is on the Bank of England meeting tomorrow. The BoE is widely expected to leave rates on hold. The pound moved lower today against the dollar after stalling its rally in the mid-$ 1.43 area yesterday. Cable found support at the key $1.42 level.

The North American session had a busier economic calendar. The US released March retail sales which unexpectedly fell 0.3% month-on-month. This was against economists’ expectations for a 0.1% gain. Sales were unchanged in February. Other US data showed producer prices fell 0.1% month-on-month in March despite a forecast for a 0.2% gain. In February, PPI dropped 0.2%.Today’s data suggest a very weak first quarter for the US economy, which would lead the Fed to be more cautious with raising rates too soon this year.

The data halted two days of gains for the dollar versus the yen. After retracing a portion of its recent decline to 17-month lows, the dollar rallied to a high of 109.38 in the European session before easing back down to 109.01.

The Bank of Canada policy meeting was in focus today. The BOC held its overnight rate as expected at 0.5% and raised its 2016 growth forecast. This boosted the Canadian dollar, which had quite a good run versus the US dollar in the past three days. USDCAD dropped after the BOC policy decision to a low of 1.2742, the lowest since July 2015.

In other data, an EIA report showed crude oil inventories rose last week by 6.6 million-barrels, more than the expected 1.8 million increase. But gasoline supplies fell by 4.2 million barrels. US oil futures rose after the data to $42.40 a barrel.