Disappointing vaccine news weighed on risk sentiment during the Asian session.
CAD could recoup losses if BoC keeps monetary policy unchanged at its meeting.
CAD/JPY slipped through pivotal support, gearing up for a topside push
S&P 500 futures edged higher in the Asian session before paring gains towards the end as investors grew concerned over news that AstraZeneca had halted covid vaccine trials.
Safe have Japanese Yen and US Dollar advanced further whilst risk sensitive Aussie Dollar decline briefly through the psychologically 0.72 level.
Gold and silver trended lower, US Treasury yields and WTI crude oil also extended losses for a 6th day.
Looking ahead, BoC monetary policy decision dominates in an otherwise quiet economic calendar. Mexican inflation (August) could drive USD/MXN
Steady-as-you-go Bank of Canada Could Underpin CAD
With the data showing that the Canadian economy is recovering faster than initially expected, the Bank of Canada is expected to sit tight in wait and see mode. This could support CAD in the short term
August’s Markit manufacturing PMI data revealed the largest expansion in factory activity since August 2018, GDP in the April – June period also shrank less than the expected 39.6%.
However, with unemployment north of 10% and annual inflation rate depressed at 0.1%, the BoC is likely to confirm its commitment to “hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved” and could hint towards future modifications to its policy framework.
Canada Inflation Rate
The BoC is reviewing its monetary policy framework and shift policy towards average inflation targeting (AIT) could be on the cards to stimulate inflation in the face of significant deflationary pressures.
The review concludes in 2021 and following from recent comments from Deputy Governor Carolyn Wilkins additional monetary stimulus in the near-term seems unlikely.
Therefore CAD could recoup losses versus its haven-associated counterparts in the coming days if the BoC keeps its current monetary policy unchanged
