Global macro overview for 04/10/2017:
Interesting remarks from Bank of Canada Deputy Governor Sylvain Leduc has hit the newswires. In a prepared speech he said that Canada's economic growth rate is expected to decline over next few quarters, but should still exceed potential output. Productivity has increased significantly since the middle of 2016 and recent data show the rate of entry for new firms appears to have stabilized. The contribution of new firms to increasing economy's productive capacity could give rise to a virtuous circle of growth and increase in productive capacity from new firm creation would allow the Canadian economy to grow faster without creating inflationary pressures. Nevertheless, a sharp CAD depreciation following a drop in Crude Oil prices may have contributed to lower growth of new firms.
Compared to other economies, Leduc noticed, that Canadian productivity is still "well below" the US as significant challenges remain. In this situation, the best contribution BoC can make is to "promote economic stability" by keeping inflation at 2.0% to avoid higher inflationary pressures and overheating the economy.
In conclusion, pretty much dovish tone of the Leduc remarks will definitely curb the recent intentions of interest rate hike supporters in Bank of Canada
Let's now take a look at the USD/CAD technical picture at the H4 time frame. The price tests the nearest technical support at the level of 1.2454 and the last candlestick hammer formation might suggest the demand side is fighting to defend this level of support. Nevertheless, the market conditions are still overbought and the upward momentum seems to be decreasing. A breakout below the technical support at the level of 1.2416 is needed to accelerate the sell-off towards 1.2338.
