The foreign exchange market, unlike the stock markets, froze in anticipation of the important events of this week - the publication of data primarily from the US and the results of the ECB meeting on monetary policy.
Of course, today the Bank of Canada's monetary policy decision will attract investors' attention. The regulator is expected to raise the key interest rate by 0.25% to 1.75% from 1.50%. How can the Canadian dollar react if the rate is raised?
In our opinion, the Canadian currency can receive significant support only if the central bank, in its commentary on the meeting's outcome, makes it clear that it will continue to strive for higher interest rates. If this does not happen, then we should not expect the growth of the local dollar, as the probability of an increase in rates is already actually taken into account in the quotes, and oil prices are under significant pressure, which negatively affects the Canadian currency, because it is a commodity. The USD/CAD pair may resume growth after some volatility on the wave of positive data on the US economy. Recall that today is the release date for data on value of business activity indices in the manufacturing sector (PMI) and the service sector, as well as data on sales of new housing.
According to the forecast, the index of business activity in the manufacturing sector (PMI) and the service sector should be at the level of 55.5 points in October against 55.6 points in the previous month and 54.1 points in this month against 53.5 points in September, respectively. In addition, the values for new home sales in the United States for September will be presented. They are projected to increase to 630,000 in September against 629,000 in August. It can be assumed that if the data do not disappoint, they can support the dollar, although in general we note that we do not expect any major changes in the currency markets. Most likely, the sideway trend for major currencies will continue against the backdrop of high volatility.
Significant changes in the euro and the dollar, it seems, should be expected at the end of the ECB meeting, which will be held on Thursday, and the publication of US GDP data for the third quarter. It is expected that the European regulator will leave interest rates unchanged, but will announce the timing of the termination of the quantitative easing program. As for the data on GDP from the US, there is a strong slowdown in growth to 3.3% against 4.2%.
Assessing the likely dynamics of the foreign exchange market today and in general this week, we assume that volatility will increase significantly amid geopolitical tensions, trade wars and expectations of the outcome of the US Congress elections.
The forecast for today.:
The AUD/USD pair is trading at 0.7100 in anticipation of important economic data from the US. If it turns out to be strong, the pair may fall to 0.7040. At the same time, if it turns out to be weaker, we can expect a local growth of the pair to 0.7150, although in general the pair seems to remain in the range of 0.7040-0.7150 for today.
The USD/CAD pair is trading above 1.3070 waiting for the result of the meeting of the Central Bank of Canada. If the bank raises interest rates and makes it clear that it will not stop there, the pair will fall to 1.2980. At the same time, the absence of such a signal may support the pair and it will grow to 1.3170.
