This morning we learned that the Bank of Canada removed the phrase “conditional commitment,” which lends the market to anticipate that the Canadians will begin raising rates in June. We have discussed for the past four months that the fundamentals underlying the Canadian economy are very strong –the only drags being a strong currency and the U.S. economy.
Bank Governor Mark Carney is a very credible analyst of the global economy. When Carney opines it is important to pay attention. The more strident language in the BOC statement leads us to believe that the Canucks, like the Aussies, are feeling assured that global growth is picking up and that even a very strong currency will not be enough to curtail their economies heating up. The markets this morning have put a strong bid to both the Aussie and Canadian DOLLARS, giving great credence to the views of both central banks.
Are the markets loonie in doing so? We will not know more until the ASHES clear on the SEC moves and the European DEBT problem. For now the strong will be rewarded as it should be, but we caution that the market may be getting ahead of itself on the Canada. The Aussie is a different story as it is the one central bank that is most ahead of the curve. Traders should look at the AUD/CAD cross to verify which one has the most credibility.
April 20, 2010 at 5:50 pm |
Now that Canada is removing the condtional commitment phrase, can we assume the next FED meeting release will see a removal of the low rates for an extended period element from their statement?
What do you see as the implications of such a move, curve bear flattening?
Thanks
April 20, 2010 at 8:01 pm |
MBS–we can’t assume the Fed will remove the extended period because of bernanke speech.The canadians have just removed the language but the fed will be more reticent
April 20, 2010 at 8:02 pm |
but you are right about a bear flattening–see the canadian move today