Central Bank Watch: BOC, RBA, & RBNZ Rate Expectations; USD/CAD, AUD/USD, & NZD/USD Positioning Update

Bank of Canada to Stay on Low Rate Path

The Bank of Canada’s September rate decision offered few material changes from the prior meeting, although it was noted that the Canadian economy has picked up its pace of recovery through the third quarter. It would appear that Bank of Canada interest rate expectations, which have been steady for several months, will remain stable for the foreseeable future.

Bank of Canada Interest Rate Expectations (SEPTEMBER 17, 2020) (Table 1)

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Central Bank Watch: BOC, RBA, & RBNZ Rate Expectations; USD/CAD, AUD/USD, & NZD/USD Positioning Update

At the end of April, there was a 55% chance of a 25-bps interest rate cut in December 2020, according to Canada overnight index swaps. In mid-August, there was a 17% chance. Now, there is an 8% chance. It still holds that the Bank of Canada’s efforts along the interest rate front are finished. If the BOC does anything else, it may not be to cut interest rates to zero – or to negative territory. While negative rates are a potential for other major currencies (see: RBNZ and the New Zealand Dollar), the Canadian Dollar is not weighed down by this consideration at present time.

IG Client Sentiment Index: USD/CAD Rate Forecast (SEPTEMBER 17, 2020) (Chart 1)

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Central Bank Watch: BOC, RBA, & RBNZ Rate Expectations; USD/CAD, AUD/USD, & NZD/USD Positioning Update

USD/CAD: Retail trader data shows 72.70% of traders are net-long with the ratio of traders long to short at 2.66 to 1. The number of traders net-long is 0.79% lower than yesterday and 3.35% lower from last week, while the number of traders net-short is 3.75% lower than yesterday and 15.10% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.

Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/CAD trading bias.

Reserve Bank of Australia Maintains Yield Curve Control

The Reserve Bank of Australia’s September policy meeting was another waypoint amid the three-year promise to keep its interest rate at an all-time low of 0.25% amid implementation of its first-ever quantitative easing (QE) program. Few signals regarding immediate action suggest that the RBA is on a steady course.

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