Bank Of Canada Policy Announcement Could Stoke Fears Over Chinese Slowdown

Published: Tuesday, 23 October 2012 09:00 BST - Written by David Woodsmith

STORY LINK Bank Of Canada Policy Announcement Could Stoke Fears Over Chinese Slowdown

Risk remained firmly off the menu during yesterday’s session, following last week’s disappointing Chinese GDP data and the failure of the EU summit to yield any new policy measures. The ‘risk-off’ trading environment saw London’s FTSE 100 and Europe’s bourses give up between 0.20% and 1.00% of their values. However, last night’s Asian session saw market participants regain their appetite for risk, with Hong Kong’s benchmark Hang Seng index gaining almost three quarters of a percentage point. In spite of the apparent flight to safety at the start of the weekly session, the GBP USD exchange rate has remained stubbornly above the key 1.6000 level, suggesting that a strong band of technical resistance exists in this region.

Looking ahead to today’s session, the major risk events of note come from Canada for once, with the release of the latest Retail Sales data and, more importantly, this afternoon’s Bank of Canada policy decision. It would be a major surprise if the Canadian central bank opted to alter its key lending rate from its current level of 1.00%. However, the Bank’s accompanying announcement will be closely-watched by analysts and investors for clues on the future direction of the nation’s monetary policy. The BoC has been the one global reserve bank which has consistently stuck to its guns regarding the future need for a tightening of policy. If today’s commentary sees the BoC abandon its hawkish rhetoric due to fears of a dip in demand from Asian export markets, then the Canadian Dollar would not be the only currency to suffer. In such an event, it would be likely that the risk-sensitive Australian and New Zealand Dollars and the South African Rand would also lose support as investors feared the worst regarding a generalised global slowdown.

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