An empty US economic calendar shifted focus north of the US border, with a key Bank of Canada interest rate decision forcing major price movements in Loonie pairs. The Canadian central bank surprised some when it short-term interest rates by 25 basis points to 4.00 percent and voicing clear concern over the future of domestic growth. The Canadian dollar had previously appreciated on speculation that the BoC could raise interest rates through year-end. Yet a clear deterioration in world financial market conditions and dimmed outlook for US economic growth shifted rate forecasts for the Canadian currency. The Canadian dollar fell sharply against its US namesake—falling to lows of C$1.0152 per USD through afternoon trade.
News of the BoC rate cut likewise boosted speculation over similar moves by other major central banks. US Fed Funds rate futures now price in a whopping 50 percent probability that the Federal Open Market Committee will slash rates by 0.50 percent through their December 11 meeting. Yet such rate predictions may clearly change through several consecutive days of significant US economic data. Tomorrow will see the highly-anticipated ADP Employment change report—an accurate predictor of official Bureau of Labor Statistics Non Farm Payrolls data. And the later-morning ISM Services result may likewise drive major volatility across US dollar currency pairs.
Written by David Rodríguez, Currency Analyst for DailyFX.com
