MNI China Daily Summary: Wednesday, December 11

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USD Edges Higher, BOC Prompts CAD Volatility

FOREX
  • The Greenback is set to slightly extend the week's gains, with the dollar index currently up 0.15% approaching the close. There was mixed performance across G10 currencies on Wednesday with no notable changes on the day for major pairs.
  • The Bank of Canada did spark some volatility in the CAD, however, with a notable 116 pip USDCAD range within 40 minutes of the statement release.
  • The BOC left its key interest rate unchanged at a record low 0.25%, in line with consensus forecasts. It expected the economy to strengthen in H2 2021 after shrinking in the second quarter and according to analysts at RBC, the statement provided a more balanced assessment of economic conditions than they had anticipated.
    • Initially the marginally hawkish communique prompted a small move lower in USDCAD from 1.2669 to 1.2646. However, a mixture of broad dollar strength and short term-positioning provoked a sharp reversal higher, taking out the highs of the day through 1.2707 and spiking to fresh two-week highs of 1.2762. Gains were short lived as the pair reversed once more, eventually settling towards the lows of the day around 1.2670.
  • There were some notable moves in the EM space where USDBRL rose roughly 2.5% and USDTRY increased 1.4% to 8.47.
  • Market focus turns to Thursday's ECB decision where easing financial conditions since the July GC meeting, coupled with an improvement in economic conditions and an acceleration in inflation, suggest that the ECB is likely to announce a reduction in the PEPP purchase rate this week.
  • Overnight, Chinese CPI and PPI data is scheduled with BOC's Gov Macklem due to hold an online press conference about the Economic Progress Report during the US session.
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