Comments and forex-analytics from FBS Brokerage Company - page 31
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BMO Capital Markets: USD/CAD is likely to rise
Canadian dollar declined versus its US counterpart from maximum of 0.9445 hit on May 2 to 0.9769 today. The pair USD/CAD managed to break above the 9-month bearish trend line at 0.9758.
Currency strategists at BMO Capital Markets claim that if the greenback closes the day above this level, the short-term trend will reverse upwards within the longer-term downtrend from October.
The specialists expect that the greenback will firstly consolidate at the current levels or even pull lower before the next upward move. In their view, the pair may climb to 0.9915/1.0060.
Danske Bank: 10 reasons for BoE to stay on hold
Here is more interesting analysis from Danske Bank. The specialists give 10 reasons why the Bank of England will keep rates unchanged this year:
1) The output gap is too large, the economy hasn’t recovered enough from the last recession and the economic growth rate is low. In order to help production recover to the pre-recession level a substantial amount of monetary stimulus is necessary.
2) High unemployment (around 3% points above its structural level), the private sector won’t manage to absorb the projected public lay-offs. As a result, many people are likely to lose their jobs when the public sector shrinks.
3) Current inflation is high but inflation expectations are leveling off and there is no wage pressure. There is actually a risk that in the medium term inflation will undershoot the Bank of England’s 2% target. The MPC hasn’t lost its credibility as some critics argue.
4) Consumer sentiment is already very negative as with previous recessions and this may lead to a setback in private consumption.
5) Growth in disposable income for households, measured by earnings growth minus retail price growth, has been negative for more than a year. Higher borrowing costs will squeeze households further and increase insolvencies.
6) Business sentiment is deteriorating. Economic conditions are challenging and indicators show that there’s a threat of contraction during the next months.
7) Broad money growth, closely associated with prices according to the quantity theory of money, has now turned negative – fundamental sign for policy makers not to tighten monetary policy.
8) The UK debt burden is rapidly growing. The cost of servicing debt will rise if interest rates rise too fast. Official projections for government debt rely on too optimistic projections for economic growth, which can be difficult to achieve.
9) Exporters need all the support they can get. If pound strengthens, the trade balance that is already in the bad shape will worsen more. Sterling’s true “undervaluation” might be smaller than believed by most.
10) The hawks in the Monetary Policy Committee are losing faith in the need monetary tightening. Recently Martin Weale, who has been voting for rate hikes since January, indicated that he may vote for rates to be left on hold due to the latest poor data. Danske specialists believe that Spencer Dale, the BoE’s chief economist, has similar considerations.