BOC: Macklem: Policy Rates At Low End Of Neutral Range Providing Some Stimulus
BOC Gov Macklem is asked in an event Monday about why the Bank signaled last week that it wouldn't cut rates further (the actual Q from the host: "you said pretty clearly that this is it, you're done, unless things get way off course, you need to stop there. Why?") Macklem doesn't push back against the premise of the question, saying that there are limits to what monetary policy can do to mitigate the economic damage from the US-Canada trade conflict.
- Then asked why the BOC made in October what appeared to be explicit forward guidance on not cutting further, Macklem said: "We feel that with our interest rate at the low end of what we call our neutral range, it's providing some stimulus that's helping with this adjustment. But yeah, I mean, based on - and I would underline the conditionality of the statement - based on our current outlook with the current tariffs that are in place. Yes, we think monetary policy is in about the right place to provide some support while keeping inflation well controlled. We've also said, look, if the situation changes, you know, we're certainly prepared to adjust. We recognize there's still a lot of uncertainty."
- Implied BOC rates are little changed through the event, with a December cut just 12% priced and no full cuts seen through the rest of the cycle (about 1/2 a 25bp cut cumulative through next summer).
- On inflation, Macklem notes that upward momentum has "dissipated" but he's wary about how inflation may develop amid the ongoing "structural adjustment" in the economy: "Our assessment overall is still underlying inflation is about two and a half [percent].... that is a bit of a concern. And what you worry about is that headline inflation is going to adjust up to those rather than those adjusting down to 2%... the more reassuring sign earlier in the year, we did see some upward momentum in those. By which I mean, if you look at the three month, six month measures, they were running at 3.5%, they've now come down a little under 3. So some of that upward momentum we saw has come out. It takes a little while for that to show up in the year over year numbers. So we think that... upward momentum is dissipated. We think there's going to be some more easing. But look, this is a structural adjustment. We don't go through these very often. So yes there is a normal amount of uncertainty about how this is going to play out. And we're watching that closely. Our priority is to make sure that a tariff problem doesn't become an inflation problem."
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USDCAD TECHS: Fresh Cycle High
- RES 4: 1.4111 High Apr 10
- RES 3: 1.4045 3.0% Upper Bollinger Band
- RES 2: 1.4019 38.2% retracement of the Feb 3 - Jun 16 bear leg
- RES 1: 1.3989 200-dma
- PRICE: 1.3953 @ 16:02 BST Oct 3
- SUP 1: 1.3897/3825 Low Sep 30 / 50-day EMA
- SUP 2: 1.3727 Low Aug 29 and a bear trigger
- SUP 3: 1.3689 Low Jul 28
- SUP 4: 1.3637 Low Jul 25
A bull cycle in USDCAD remains intact and yesterday’s break above the late September’s high, firms the bullish theme. This move higher also maintains the bullish price sequence of higher highs and higher lows. Note too that moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 1.4019, a Fibonacci retracement point. On the downside, first key support lies at 1.3825, the 50-day EMA.
AUDUSD TECHS: Support Remains Intact For Now
- RES 4: 0.6763 1.382 proj of the Jun 23 - Jul 24 - Aug 21 price swing
- RES 3: 0.6726 1.236 proj of the Jun 23 - Jul 24 - Aug 21 price swing
- RES 2: 0.6660/6707 High Sep 18 / 17 and key resistance
- RES 1: 0.6629 High Sep 30 & Oct 01
- PRICE: 0.6603 @ 16:01 BST Oct 3
- SUP 1: 0.6527/21 61.8% of the Aug 21 - Sep 17 bull leg / Low Sep 26
- SUP 2: 0.6484 76.4% retracement of the Aug 21 - Sep 17 bull leg
- SUP 3: 0.6463/6415 Low Aug 27 / Low Aug 21 / 22 and a bear trigger
- SUP 4: 0.6373 Low Jun 23
The AUDUSD uptrend remains intact and recent weakness appears to have been a correction. Support to watch lies at the 50-day EMA, at 0.6558. A clear break of this average would signal scope for a deeper retracement and expose 0.6527 once again, a Fibonacci retracement. For bulls, a stronger reversal higher would refocus attention on 0.6707, the Sep 17 high. Initial resistance to watch is 0.6629, the Sep 30 and Oct 1 high.
US TSYS/SUPPLY: September's Coupon Auctions Were Generally Solid (2/2)
September’s coupon auctions were generally solid, with three lines trading through, two coming out on the screws and two tailing slightly.
- Looking through the lens of MNI’s Relative Strength Indicator (RSI), five lines saw positive readings while two saw negative readings.
- The 3-year sale was the strongest auction of the month according to MNI’s RSI. The 3-year line traded through 0.7bps, the largest stop through in seven months. Meanwhile, the primary dealer take-up was just 8.4%, the lowest on record (data going back to 2003).
- The weakest sale of the month was the last – the 7-year line. This line saw the second consecutive 0.5bp tail, with the 12.0% primary dealer take-up above August’s 9.8% and July’s record low 4.1%.
September Auction Review:
- 2Y Note on-the-screws: 3.571% vs. 3.571% WI.
- 2Y FRN: 0.200% high margin vs. 0.195% prior
- 3Y Note trade-through: 3.485% vs. 3.492% WI.
- 5Y Note tail: 3.710% vs 3.709% WI.
- 7Y Note tail: 3.953% vs. 3.948% WI.
- 10Y Note trade-through: 4.033% vs. 4.047% WI.
- 10Y TIPS: 1.734% high yield vs. 1.985% prior
- 20Y Bond trade-through: 4.613% vs 4.615% WI.
- 30Y Bond on-the-screws: 4.651% vs. 4.651% WI.
