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Bank of Canada on hold, as expected

The Bank of Canada did as the markets expected and left Canada’s base rate on hold at 4.50%. After a year of eight interest rate hikes in a row, the BoC became the first major central bank to pause the rate hikes. They believe inflation is in a better place now and, having seen Consumer Price Inflation spike to 8.1% last year but ease off to 5.9% in January, you could see their argument. Having said that, as with many central banks, the BoC has a target inflation level of 2.0% and the January rate is still almost three times the Bank of Canada’s target. So widely anticipated was this move that the Canadian dollar lost a cent against the pound on the day. This morning’s starting price is CAD 1.6345. We will get a speech from the BoC’s senior Deputy Governor, Carolyn Rogers later today. Maybe that will provide further enlightenment.

USD continues to dominate ahead of employment data

Confidence in the US dollar is still very evident as traders believe further interest rate hikes are coming from the federal reserve, boosting the yield on US assets. The tests start today with the weekly jobless claims numbers and continue tomorrow with the February employment report. If the Beige Book, which was released yesterday evening, is anything to go by, these jobs reports should be reasonably strong and that will reinforce the belief in further rate hikes. That ought to equate to further US dollar strength. This morning starts with the GBPUSD rate fairly static at $1.1845 and the EURUSD rate similarly flat at $1.0550.

Aussie and Kiwi weaker on USD and poor Chinese inflation

Chinese inflation slipped in February. The Consumer Price index dropped to 1.0% on the year against a forecast of 1.9% and the producer price index worsened to minus 1.4%; slightly worse than the market forecasts. Negative Chinese data has an impact on the Asian and Australasian regions. Add in the strengthening US dollar, which tends to weaken the Aussie and Kiwi dollars, and there is no surprise that the GBPAUD rate is up to AUD1.7915 and the GBPNZD rate is up on the week to NZD 1.9360. We will see the NZ business sector PMI tonight and of course the US employment data will also have an impact.

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