Canada's September CPI on 19 October came in soft at 3.1%, and the Bank's core measures eased below 2%. BoC hike pricing barely moved, and a Reuters poll now shows most economists expecting a hike on Wednesday. USD/CAD closed through our stop and then fell for seven sessions in a row, while CAD/SGD climbed against our short. French stress escalated after the 17 October riots, and the OAT-Bund spread hit a cycle high near 175bp on 22 October, adding to the gains on our EUR/SGD and EUR/USD shorts. After Friday's close, Moody's surprised the market by keeping France at Aa3 when most expected a downgrade. On 21 October RBA Deputy Governor Hauser warned that the inflation outlook was "materially worse", which pushed November hike odds back above 50%, took AUD/JPY to a cycle high and pulled GBP/AUD lower. A hot 3.5% UK CPI print and falling unemployment then carried GBP/USD through our stop, helped by a dollar that slid to a near three-week low even with roughly 90% odds of a December Fed hike.
How our views are tracking
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Short CAD/SGD — thesis weakened Canada's soft core inflation was exactly the data our CAD-weakness case needed, but the market traded Macklem's hawkish guidance instead, and Singapore's core CPI slipping to 2.0% weakened the SGD leg too. |
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Short EUR/SGD — thesis strengthened Cycle-high French spreads and a firming consensus for an ECB hold on 29 October pushed the pair back towards its cycle low, with the euro leg doing all the work. |
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Long USD/CAD — stop triggered The pair closed through its stop on 19 October as the BoC hike we gave roughly a one-in-five chance became the market's base case, so the position goes to review in our next full analysis. |
Invalidator watch
Three positions have now closed through their stops: GBP/AUD, USD/CAD and GBP/USD. Two more are one event away from invalidation. SGD/CHF needs just one more session with the OAT-Bund spread above its threshold, and NZD/USD is a whisker from its close-above level heading into the RBNZ decision. The biggest shift in the book is the BoC-hike invalidator, which CAD/SGD, USD/CAD and AUD/CAD all share: we gave it about 20% at analysis, and the market now treats it as the base case. The euro shorts remain valid and are carrying the book. However, the Moody's affirmation is a relief risk for the euro that Friday's prices don't reflect yet, so we would rather tighten protection on EUR/USD than add to it before Monday's open.
Next week
| Tue Oct 27 | French social security budget vote | Affects: EUR/SGD, EUR/USD, SGD/CHF |
| Wed Oct 28 | BoC decision + Monetary Policy Report | Affects: CAD/SGD, USD/CAD, AUD/CAD |
| Wed Oct 28 | Australia Q3 CPI + UK Budget | Affects: GBP/AUD, AUD/CAD, GBP/USD |
| Wed Oct 28 | FOMC decision | Affects: USD/CAD, EUR/USD, GBP/USD |
| Thu Oct 29 | ECB Governing Council | Affects: EUR/SGD, EUR/USD |
Wednesday's BoC decision matters most, because the CAD view is our biggest exposure. With a hike now largely priced, the lopsided outcome is a hold justified by sub-2% core inflation, which is exactly our original thesis and would unwind the CAD premium built up since Macklem's remarks in a single session.
Full analysis with all pair rankings, carry landscape, risk dashboard, and catalyst calendar available for Edge and Dossier members.