BOC: Implied Cuts Slowly Build On Weak GDP, Trump Axing Canada Trade Talks
Jun-27 18:57
US President Trump's social media announcement that his country would immediately end trade talks with Canada over a digital tax dispute saw a knee-jerk increase of a little over 1bp (or 5% implied probability) of a July BOC rate cut, which is currently around 40% implied probability.
- The bigger move was in USDCAD which rose 0.6% to a session high 1.3759, but remains within the week's ranges.
- Trump's announcement had a bigger discernable impact than the morning's GDP reading which showed a below-consensus -0.1% M/M reading for April, with the May flash estimate also pointing to a 0.1% contraction. That was indicative of quarterly growth of -0.3% in Q2, if June comes in flat (this would be between the BOC's two scenario estimates of -1.3% and 0.0%).
- Though for the day, we've seen a 4bp increase in market cut pricing for 2025 as a whole, with 38bp of easing now priced. The 2.37% OIS implied is the lowest since the June 4 BOC decision, having peaked in mid-June at 2.50%.
- There's been a steady rise in implied cuts through the session, with both the potential for weak GDP growth (in the last reading before the end-July BOC) in Q2 and additional uncertainty created by a re-upping of US-Canada tensions forcing the BOC to seriously consider easing in the coming months should inflation show signs of cooling.
| Meeting | Current | Yest (Jun 26) | Change since then | Cumulative Change From Current Rate (bp) |
| Jul 30 2025 | 2.65 | 2.66 | -1.2 | -10.7 |
| Sep 17 2025 | 2.54 | 2.57 | -3.8 | -21.6 |
| Oct 29 2025 | 2.47 | 2.50 | -3.2 | -28.6 |
| Dec 10 2025 | 2.37 | 2.42 | -4.3 | -38.0 |
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FOREX: USD Index Extends Bounce from Weekly Lows to 1.2%
May-28 18:53
- The greenback continues to trade with a more constructive manner on Wednesday, as a stable equity backdrop provides a more supportive tone for the USD index. This has allowed the DXY to extend the bounce off the week’s lows to 1.2%, narrowing the gap to both the 100.00 handle and initial resistance at the 20-day EMA.
- Headlines and newsflow have been few and far between for markets, with a semblance of stability for the Japanese yield curve also helping contain markets, as well as reduced headlines on the flow of trade deals with the US.
- USDJPY has once again outperformed, rising 0.45% on the session and threatening to close back above the 145.00 handle for the first time since May 16. Despite this week’s strong bounce, a technical downtrend in USDJPY remains intact and short-term gains are considered corrective. On the upside, initial firm resistance to watch is 145.68, the 50-day EMA.
- In similar vein, EURUSD has slipped back below the 1.13 handle as price looks to snap the uptrendline drawn off the early May low. 1.1284, the 38.2% retracement for the upleg off 1.1065, has been tested and clearance below would open the 50-dma which had successfully held as support when tested earlier this month.
- NZD is outperforming following the RBNZ rate decision. While the bank cut rates - as expected - by 25bps to 3.25%, the board suggested that the base rate is near the 'neutral' zone, which may limit the space for further rate cuts ahead.
- Latin American currencies have been notable laggards on the session, as markets react to the firmer dollar and weigh risks related to fiscal and monetary policy trajectories across the region. Both the Mexican peso and the Brazilian real have fallen 0.75%, with the former taking a hit leading into Banxico’s quarterly report, which downgraded both 2025 and 2026 growth forecasts for the Mexican economy.
- The second reading of US Q1 GDP/PCE will take focus on Thursday, before markets turn their attention to Friday’s release of April Core PCE. Central bank rate decisions for the BOK and SARB are also scheduled.
USDJPY TECHS: Trend Needle Points
May-28 18:30
- RES 4: 150.49 High Apr 2
- RES 3: 149.28 High Apr 3
- RES 2: 148.65 High May 12 and a key resistance
- RES 1: 144.99/145.68 High May 28 / 50-day EMA
- PRICE: 144.98 @ 16:20 BST May 28
- SUP 1: 142.12 Low May 27
- SUP 2: 141.96 76.4% retracement of the Apr 22 - May 12 bull leg
- SUP 3: 139.89 Low Apr 22 and a bear trigger
- SUP 4: 138.82 1.50 proj of the Feb 12 - Mar 11 - 28 price swing
Despite yesterday’s strong bounce, a downtrend in USDJPY remains intact and short-term gains are considered corrective. Support at 142.36, the May 6 low, has been pierced. A clear break of it would open 139.89, the Apr 22 low and the next key support. On the upside, key short-term resistance has been defined at 148.65, the May 12 high. Initial firm resistance to watch is 145.68, the 50-day EMA.
FED: NY Fed To Run Regular Morning Standing Repo Ops
May-28 18:16
The NY Fed announces that (as has been the case for the last couple of month- / quarter- ends) that it will run a daily morning overnight Standing Repo Facility (SRF) operation (0815-0830ET) starting Jun 26, in addition to the usual afternoon SRF ops (1330-1345ET). Announcement here.
- What is unusual is that there is now no end-date to these operations - this announcement confirms what NY Fed SOMA manager Perli said last week, along with the reasoning:
- "The SRF is an important facility, but it is not frictionless. Our SRF counterparties have mentioned some features of the SRF that discourage its usage even if market rates exceed its minimum bid rate. One such friction is the fact that SRF auctions are carried out and settled in the afternoon, while most repo market activity takes place in the morning. Afternoon auctions are important because they can provide cash later in the day should a need for liquidity arise when most repo market activity has already taken place. Still, that does not mean additional earlier SRF auctions cannot be helpful....in the not-too-distant future the Desk will start implementing daily morning SRF operations that will also be settled in the morning. This will be an important step in enhancing the efficacy of the facility, and, at the margin, it can contribute to a smaller SOMA portfolio than would otherwise have been the case."
- Daily aggregate size for the combined operations is $500B.
- On the margins this should be helpful for market functioning at times of distress, but given such limited takeup of the morning SRF in the last couple of quarter-end windows, and the fact that the NY Fed telegraphed this decision previously, there shouldn't be much of a market reaction.
