Bank of Canada Delivers Surprise 25 Basis Point Hike 

The BoC leapt off the sidelines and jumped back in the game with a surprise rate hike. The Canadian economy has accelerated over 2023, with consumer spending leading the way. Robust employment gains and inflation-adjusted wage increases are enabling Canadians to keep spending in spite of high interest rates. With excess demand persisting, this will likely delay the timing of when inflation will be able to return to the 2% target.

Surprise BoC Hike Fuels Hawks Around the World

Uh oh. The surprise 25bp hike from the Bank of Canada (BoC) yesterday sent shockwaves across the financial markets. BoC decision to resume its rate hikes after a two-meeting pause and the surprise 25bp from the Reserve Bank of Australia (RBA) a day earlier fueled the central bank hawks around the world and boosted the Federal Reserve (Fed) rate hike expectations as well.

Higher Yields Amid Surprise Hike from Bank of Canada

CAD rallied after Bank of Canada surprised markets and hiked policy rates. EUR/USD continues to hover around the 1.07 level - mind the upcoming tightening of USD liquidity conditions for a potential trigger for a move lower. Scandies continue to trade on a weak footing with EUR/SEK flirting with the 11.70 level.

Eager to Find If Core Bonds Remain in Sell-off Mode

We are eager to find if core bonds remain in sell-off mode in the run-up to/putting pressure on Fed/ECB policy meetings next week.

Cryptocurrencies Under Renewed Pressure

Bitcoin is trading near $26.4K, down 1.5% in 24 hours, a level that has acted as support over the past three months. On Wednesday, the price reversed as it approached its 50-day moving average. This was triggered by a sell-off in the Nasdaq 100, which lost 1.75% on the day. The technical picture remains quite bearish, with Bitcoin remaining within a two-month downtrend channel, setting up an imminent drop towards $25K to test more significant support.

AUD/USD Hits One-Month High, Chinese Inflation Eyed

The Australian dollar has bounced back on Thursday after losing ground on Wednesday. AUD/USD is trading at 0.6681, up 0.42% on the day. The Australian dollar touched a high of 0.6690 on Wednesday, its highest level in a month.

Sunset Market Commentary

On FX markets, the dollar gives tentative signs of a topping off pattern, but first relevant technical support hasn’t been broken yet.

ECB Preview

The ECB meeting next week will be a peculiar one, with a risk of no market reaction. On the one hand, the decision has already been well telegraphed (25bp hike and APP reinvestments to end from 1 July) and on the other hand guidance (with new staff projections) is likely a 'one-sided' risk for markets. Hawkish tunes from Lagarde on the back staff projections is at risk of being largely disregarded by markets.

Fed Preview: On Hold

We expect the Fed to maintain rates unchanged next week, markets price in a modest 25% probability of a 25bp hike.

Cliff Notes: Inflation's Cost

As interest rates continue to rise and inflation only slowly abates, real discretionary spending capacity will remain under pressure. Regarding other areas of the domestic economy, conditions for investment were supportive in the quarter, a rise in construction work and equipment spending leading a 2.9% increase in new business investment overall. Note though, the outlook for investment is clouded given emerging weakness in household demand and global uncertainties.