Morning Commentary: We are the North

Foreign Exchange - Morning Commentary
We are the North
Share this story:
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
The Bank of Canada (BoC) will announce its most recent rate decision tomorrow morning.  Despite a run of mixed data, the BoC’s resilience against the dovish wave that has swept over many other central banks should continue. 

One of the key risks cited by the BoC was the uncertainty around global trade.  With USMCA recently passing the US Senate and the Phase 1 deal between the US and China officially signed, trade uncertainty has been materially reduced.  Given this, the negative effects of trade tensions are likely to be felt for a while and the risk remains for the US to escalate tensions with other trading partners, i.e. Europe.  Nevertheless, the most recent developments around trade have certainly been positive and the pullback in trade risks should allow for a rebound in investment, sentiment and, ultimately, exports. 

Moreover, comments from the BoC have downplayed some of the recent weak data points with the bank arguing that one-off factors make it difficult to assess any trends from Q4 data.  To this point, forward looking data points are starting to show signs of stabilization.  Critically, the labor market continues to perform and inflation remains on target.  As a final point, the BoC remains concerned about how low interest rates could be feeding into elevated household debt. 

Taking all these factors together, the expectation is that the BoC will remain on hold and reiterate that its current policy stance remains appropriate.  Moving forward, it is likely that the bank retains a mild easing bias, making incoming data increasingly important.  However with inflation on target, the labor market resilient, and household debt elevated, we believe the bar remains high for any near term BoC action. 
  • The spread of the coronavirus in China has grabbed most of the headlines.  So far there have been ~291 confirmed cases with the disease killing 6 people.  Additionally, human to human transmission cases have been confirmed.  The timing of this outbreak comes just ahead of the Lunar New Year in which hundreds of millions of Chinese citizens are expected to travel, raising concerns not only on the human toll but also on consumer spending and travel. 
  • The US and France have announced a truce over their dispute relating to digital taxes; neither country will impose tariffs on each other. 
  • The Bank of Japan left all aspects of its policy stance unchanged (policy rates, asset purchases and yield target).  No action was expected from the BoJ this meeting as it has expressed a desire to monitor the impact of fiscal stimulus.    During Governor Kuroda’s press conference, he reiterated his commitment to ease further should the data justify it.  Should incoming data show signs of weakness, expect BoJ easing expectations to increase.    
  • The UK’s unemployment rate came in at 3.8%, meeting expectations.  Earnings also met expectations at 3.4%. 
  • In Germany, the ZEW Survey showed the EU’s largest economy got off to a strong start in 2020.  The current situation component and expectations component both beat market consensus, lending further support to hopes that the German economy could be turning a corner.       
If we can help you with any Foreign Exchange needs, please email or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to Please do not reply to this email. To ensure the delivery of future emails, please add to your email address book or safe sender list.
Copyright ©2020 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC


Popular posts from this blog

Acquisitions or Alliances: What's Your Growth Strategy?