The currency that the new governor of the Bank of England is leaving behind, managed to quietly slip to a 10-week low on Friday. It was not even in sympathy to its sister currency’s plight ‘down-under.’ Friday’s reasons had more to do with its domestic CPI print proving that inflation can still surprise on the downside. This seems to be the new global reality – domestic inflations are benign.
However, it’s not governor Carney’s concern anymore. When monsieur Poloz takes the reins he may need to start worrying about the sharp underperformance to the downside of inflation. His first course of action may require him to remove the central banks mild tightening bias.
Raising interest rates is never popular, but keeping rates low for too long builds in persistent problems for the economy. Interest rates in nominal terms are at record low levels and negative in real terms. The symptoms of distortions created by low interest rates could lead to unfunded pensions, excessive household debt, high house prices, and a bias toward high-yielding equities. There is a train of thought that the BoE should start raising interest rates to lessen the build-up of financial imbalances.
The loonie remains at a disadvantage, as abundant liquidity and slowing commodity prices argue for buying emerging market assets with attractive coupons, while selling commodity currencies, mostly on the back of the Chinese demand for commodities continue to decline. After Friday morning’s data, corporate sellers came out in droves around the 1.0300-print. Good buyers do not appear in droves on the 1.02 handle. There is better selling of the CAD below 1.02, closer 10 1.0175.
- US Housing Starts Fall to Five-Month Low 
- US Consumer Prices Drop in April 
- USD Stumbles After US Jobless Claims Rise Questioning Recovery 
- WTI Crude Declines for Fifth Time in Six Days 
- Soros Cut Gold Positions before Gold’s tumble 
- U.S. Industrial Production Declines 
- USD/CAD at 1.0160 After U.S. Production Declines 
- Oil Price Falls as Gas Stockpiles Rise Even as Crude Supplies Drop 
- US Homebuilder Confidence Rises in May 
- US Industrial Production Falls in April 
- Is the Market Dysfunctional? Stocks Up, Yields Up, USD up. 
- US Shale Oil Can Cover Demand for Next 5 Years 
- Slowing U.S. Inflation Doesn’t Require Fed Response 
- U.S. Dollar Wreaking Havoc 
- Oil Inventories Hitting Multi-Decade Highs 
- US Dollar Strength Lowers Prices of Oil and Gold 
- Fed Preparing to Unwind Stimulus Program 
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