One of the surest ways to undermine a fundamental run that seems impregnable is to turn underlying sentiment itself. Greece is the topic du jour at the moment; and while the nation has formally requested assistance from the EU and IMF, there is no guarantee that it will come. What’s more, it is highly doubtful that the full breadth of the promised support can prevent a true crisis in the Euro Zone. If this realization dawns on the masses, the resultant panic it would set off would easily wrap the globe and set back expectations of a near-term rate hike by the Bank of Canada. The currency can’t afford any hits to its interest rate platform. This past week, the central bank altered its remarks to drop those comments that were seen as the buffer to an impending rate hike. After this shift, the market immediately began pricing in a hike at the next meeting. However, tepid forecasts for growth later this year and into 2011 from the BoC Monetary Policy Statement and the IMF, as well as an unexpectedly pull back in inflation figures has raised doubt.
To keep interest rate speculation on track, fundamental traders will first look to the commentary coming out of the G-7, G-20, IMF and World Bank summit in Washington DC. Not only will this offer clues to broader financial and economic health; but there will no doubt be commentary from Financial Minister Flaherty and central bank governor Carney. Equally as important will be Friday’s GDP report. This is only a monthly reading (for February); but to a hypersensitive currency, this data is nonetheless essential. - JK
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