Inflation divergence

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Forex Market News

A faggot of PMI’s out today from China and Europe will keep prices on the hop. Stocks had a weaker day despite continued strong earnings in both Europe and the US. The selloff attributed to some crazy nut entering Canadian parliament and getting killed. Notably the VIX tumbled so the selling won’t be sustained.

BOC

The Loonie rallied as the Canadian central bank kept rates as is but became hawkish (strong/bullish) on rates in the statement. Well, they removed the neutral stance, and well they should as the US continues to grow it will drag their neighbour with them.

OIL

Stockpiles in the US tripled which sent oil price back to recent lows, just above 80 cents. This in turn put pressure on other commodities, not enough to keep the Loonie down though.

INFLATION

As you know, inflation is the central banks mandate to control with the use of adjusting interest rates (or make stuff up like Quantitative Easing when you don’t have any more interest to rate). As currencies are an interest rate bearing financial instrument, inflation and rates are big influencers on the currency rate. So, we need to monitor these and see how they affect our market. Overnight we have seen a bit of information on CPI’s. Australia (0.5 and higher than expected), the US (0.1 and higher than expected) and just out was the Kiwi (0.3 and lower than expected). The UK’s BOE minutes also showed that they are concerned that the Euro stagnation will send deflation to the UK and therefore interest rates may stay on hold for longer than expected in Pommyland.

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