STIR: RONIA picked up to 4.13% yesterday
Dec-12 10:26
- As well as the year-end frictions picking up in EUR markets there was a pickup in RONIA yesterday, too. The rate rose almost 10bp from 4.0346% to 4.1301%.
- We had noted yesterday that there was a reduction in STR usage of GBP4.065bln (overall BOE repo ops this week reduced GBP3.169bln) but we didn't think that the reduction would be enough to materially impact RONIA.
- It appears that the lower STR usage was probably not the main driver here, that it is wider market pressures (see STIR: Some friction has shown up in EUR repo markets as we approach year-end, 10:09GMT) as we approach year-end.
- Note that the spread on the BOE's OSF (Operational Standing Facility) was narrowed on Monday this week to a spread of +/-15bp (from +/-25bp). We think that this will keep the RONIA-Bank Rate spread more contained than when it spiked in late October and post-MPC November meeting.
- A change had been on the cards for that facility, but the timing of that change coming before year-end suggested the BOE wanted this in place before year-end to deal with any liquidity issues.
- We therefore aren't overly concerned at this point, but it will be interesting to see if there is any sustained reaction in coming days.
- Also note that next week's ILTR operation will be the last of 2025 (the following operation will be 6 January). Next Thursday's STR operation will have a 5 day, rather than 7 day, maturity. And then the final STR operation of the year will be on Tuesday 23 December (with a maturity of 8 January).
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FOREX: Jobs Boost Still Providing CAD Support
Nov-12 10:18
- Despite the recovery for the greenback overnight which has prompted a ~30pip move higher for the USD index, USDCAD has largely shrugged off the move, actually trading lower on the session and consolidating close to recent lows around the 1.40 mark.
- As a reminder, USDCAD came under firm pressure last Friday following the above-consensus employment data. The pair notably fell back below the prior breakout level at 1.4080, and the subsequent extension lower has seen USDCAD move further away from strong touted resistance, the top of a bull channel, drawn from the July 23 low.
- Having highlighted this area as a key obstacle to further USDCAD strength, price has subsequently failed there on two occasions, bolstering the potential of a short-term bearish signal. Indeed, this week’s consolidation just above 1.40 highlights this bearish threat.
- The immediate focus will be on the 50-day EMA, which we have not closed below since September. The average intersects at 1.3957. Below here, key support is at 1.3888, the Oct 29 low, a level that would coincide with the bottom of said bull channel.
- Canada Oct CPI data is due next Monday, the final inflation data before the Dec 10 BOC meeting. Importantly, the jobs data showed gains even in areas thought to be hit hardest by U.S. tariffs, suggesting the central bank will be more comfortable with its view interest rates are low enough to support the economy and keep inflation on target.
