Bank of Canada Diverging From the Fed's Path — Market Talk

1027 ET - Bank of Canada-Federal Reserve divergence is set to widen into 2027, TD Securities argues. It says near-term BoC pricing looks increasingly misaligned with the domestic backdrop in Canada, with limited evidence that high oil prices are broadening into core inflation. Yet markets continue to price in a similar near-term path for the BoC and Fed despite the divergence in the two economies, TD says. Additionally, it says elevated trade uncertainty should also keep the BoC on hold into next year, even if U.S. tariffs to date haven't had much of a lasting impact outside of targeted sectors. ([email protected]; @RobbMStewart)1006 ET - Bitcoin is retreating slightly after climbing as high as $87,000, which is the highest since January. The push toward $90k has analysts calling for the start of a new "bull cycle" in bitcoin. "Bitcoin has crossed above its 365-day moving average - now at $80.5K - and trades at $86K," says analysts with CryptoQuant in a note. "This crossover is the definitive technical signal that has marked the start of Bitcoin's bull markets in past cycles." The firm adds that $90k is the new resistance level for bitcoin. Bitcoin is down 1.4% to $85,729, while ethereum falls 1.4% to $2,746, XRP rises 1.4% to $1.55, and solana slides 1.7% to $117. ([email protected])1005 ET - Higher energy and food prices are likely to keep inflation measures above the Fed's 2% target until March, Goldman Sachs' David Mericle writes. Crude prices are easing this week, but remain elevated. Mericle notes that refined products "have risen disproportionately," adding pressure on consumer prices. He expects the upward pressure on energy and food price to "keep headline PCE inflation near 3.5% through year-end before a drop-off to 2.5% in March 2027 and 2.0% in May as base effects kick in," he says. ([email protected]; @ptrevisani)0943 ET - The euro's appeal as a dollar alternative might be beginning to fade somewhat after the Federal Reserve raised interest rates last week and ahead of next year's French elections, Barclays analysts say in a note. While eurozone growth remains resilient, expectations for further rate rises by the European Central Bank appear too aggressive versus fundamentals and against a backdrop of geopolitical and trade risks, they say. "Our updated forecasts pencil in a re-convergence of euro-dollar with rate differentials-implied levels over the next 12 months." The euro falls 0.1% to $1.1455 and Barclays expects it to reach $1.12 by the second quarter of 2027. ([email protected])0937 ET - The easing of energy prices is having little impact on the dollar as expectations for further Federal Reserve interest-rate rises support the currency, ActivTrades analyst Ricardo Evangelista says in a note. The Fed's rate rise last week, along with signals of further tightening from Fed officials, has strengthened expectations that borrowing costs could rise again before year-end, he says. Currency traders will closely follow upcoming U.S. economic data and comments from Fed officials for further clues on the path of monetary policy, he says. The DXY dollar index trades flat at 100.472, having reached a seven-week high of 100.667 earlier. ([email protected])0852 ET - Treasury yields slip as oil prices fall, ahead of a $69 billion auction of two-year notes. President Trump addresses the U.N. this morning amid hopes of a diplomatic solution for the Strait of Hormuz. Crude falls 2% to stay below $100, easing inflation pressures. Markets will be watching the auction results to gauge demand for U.S. government debt as interest rate increases loom. The two-year yield trades at 4.730%, slightly lower than yesterday's settlement of 4.751%. The 10-year declines to 4.935% from 4.962%. ([email protected]; @ptrevisani)0849 ET - The Norwegian krone's recent strength could persist if the Norges Bank raises interest rates by 25 basis points to 4.50% on Thursday and indicates further tightening is possible, ING's Francesco Pesole says in a note. Market pricing for rate rises in Norway isn't as aggressive as for the Federal Reserve and European Central Bank, meaning the Norges Bank faces little pressure to lift its rate projections materially, he says. "We nonetheless expect updated forecasts to show some probability of a further fourth-quarter rate hike, while the statement should continue to leave the door open to additional tightening." The euro falls 0.2% to 10.7929 kroner and ING has a near-term target of 10.70 kroner with potential to reach 10.60 kroner.([email protected])0827 ET - The global economy has remained resilient in the first three quarters of 2026, mainly driven by AI-related capital expenditure in the U.S. and Asia, Morgan Stanley economists say in a note. Economies in the U.S., Asia, and Europe have remained stable despite high energy prices from the Middle East war, the economists say. That said, economic growth and rising energy costs are pushing major central banks toward higher interest rates, they say. ([email protected])0823 ET - The Hungarian forint remains weaker against the euro, showing a limited reaction after Hungary's central bank held interest rates steady at 5.50%. The decision, which follows three consecutive rate cuts of 25 basis points, was widely anticipated with the central bank having warned about the inflationary impact of a weaker forint and higher energy prices, Capital Economics economist Liam Peach says in a note. The central bank is also expected to lower its inflation target, which might imply a higher near-term rate profile, he says. The easing cycle will probably be on pause through the rest of this year, he says. The euro rises 0.4% to 361.60 forints, little changed from levels before the decision.([email protected])0722 ET - The cost of insuring euro credit against default remains steady as hopes of talks between the U.S. and Iran raise optimism. "Investors continue to balance the prospect of U.S.-Iran talks around the UN General Assembly against continued disruption to Gulf [oil] supply," Capital.com's Daniela Hathorn says in a note. Brent crude drops 2.0% to $98.32 a barrel, after encouraging media reports about oil flows from the Middle East. The iTraxx Europe Crossover index of euro high-yield credit default swaps is steady at 284 basis points, S&P Global Market Intelligence data show. ([email protected])0722 ET - The cost of insuring euro credit against default remains steady as hopes of talks between the U.S. and Iran raise optimism. "Investors continue to balance the prospect of U.S.-Iran talks around the UN General Assembly against continued disruption to Gulf [oil] supply," Capital.com's Daniela Hathorn says in a note. Brent crude drops 2.0% to $98.32 a barrel, after encouraging media reports about oil flows from the Middle East. The iTraxx Europe Crossover index of euro high-yield credit default swaps is steady at 284 basis points, S&P Global Market Intelligence data show. ([email protected])0716 ET - There were signs at the Bank of England's meeting last week that policymakers' patience around the energy-price shock is wearing thin, Deutsche Bank economists Sanjay Raja and Maui Brennan say in a note. Following the BOE's decision to hold, Deutsche revised its expectation to two quarter-point hikes in November and February, changing its call from no hikes previously. While there wasn't a fundamental shift in rate-setters' thinking, continued high inflation increases the likelihood second-round effects build, the Deutsche economists say. "Put simply, we think the monetary-policy committee may embark on a modest tightening cycle as an insurance policy against second-round effects." However, should energy prices rapidly lower in the coming weeks, the case for hikes may start to weaken, they add. ([email protected])