IMF Recommends Yuan Inclusion in SDR

Daily Analysis - 17/11/2015

Staff of Monetary Fund Want Yuan in Special Drawing Rights Basket


No official confirmation has been made as of yet, but there is a strong speculation that the news will be confirmed on November 30th, when the IMF board meets. The SDR inclusion for the Yuan would mark a major milestone boosting the Chinese bond markets alongside prompting China to loosen its grip on capital controls.

Canada Manufacturing May See Weaker GDP

Manufacturing sales in Canada fell -1.50% on a seasonally adjusted basis in September, following a -0.60% decline in August, according to data released by Statistics Canada. The declines came on low motor vehicle and energy sales. The fall marked one of the fastest declines in nearly seven months with a sharp drop in investments in the oil sector on account of low energy prices. Manufacturing outside the energy sector failed to make any steady gains despite the CAD depreciating strongly to the US Dollar. Canada's GDP especially in the third quarter remains questionable posting a modest growth of 0.10% in August. The Bank of Canada left rates unchanged while lifting its GDP forecasts from 1.50% to 2.50% for the second half of 2015. USDCAD touched a 6-week high at 1.3370 yesterday.


RBA Minutes from Monetary Policy Meet

The Reserve Bank of Australia released the monetary policy meeting minutes from the November 3rd monetary policy conference. The minutes showed that the board was open to further rate cuts on subdued inflation but said that chances for a rate cut were very low. The weaker exchange rate for the Aussie alongside a pick up in the labour markets and growth in the services sector saw the RBA keep up its upbeat tone noting that the prospects for improvement in the economic conditions were much firmer. The RBA expects to see the economy strengthen over the next two years at a gradual pace as the economy overcomes the drags from the decline in the mining sector. The RBA last cut interest rates in May this year, bringing the benchmark overnight lending rates to 2.00%. AUDUSD did not react much to the news and continues to trend lower after a bearish close yesterday following a doji previously.


UK Inflation Likely to Remain Weak

Consumer price inflation from the UK is due for release today at 09:30 UK time. Expectations are for a decline of -0.10% for the month of October on the headline while core consumer inflation is expected to rise 1.00%, unchanged from the previous month. With the Bank of England forecasting consumer inflation to remain near 1.00% into 2016, the expectations are subdued into today's release on account of a decline in commodity prices including oil and a stronger British Pound weighing in on imports. UK Consumer inflation has remained zero-bound for the most part of this year dipping into the negative in April 2015. The continued weak inflationary pressure has certainly eased the BoE from taking any immediate policy measures. As of the latest BoE monetary policy meeting, the MPC decided to keep rates unchanged at 0.50% with only one dissenter voting for a 25bps rate hike. GBPUSD closed lower yesterday forming a doji reversal on the daily charts and is poised to decline lower in the near term.


Fed Looks Towards US Inflation Data

The US Consumer price inflation data is due for release during the US trading session today. This is one of the two CPI prints before December’s Fed meeting, and expectations are for the headline inflation to have increased 0.20%, up from a -0.20% decline seen a month ago while core CPI may rise 0.20%. Although the Federal Reserve uses the PCE as a preferred gauge of inflation, CPI numbers retain much importance as they signal the wider inflationary pressures on the economy. On an annualized basis, the headline CPI is expected post a modest gain of 0.10%, up from 0.00% previously while the annualized core CPI is expected to rise 1.90%, unchanged from the previous month. With the US unemployment rate staying near the full employment mark of 5.00%, inflation remains the only piece to the puzzle. Any hints of a pickup in inflation could see the markets continue to strengthen the US Dollar into the December’s rate hike decision.


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