Canada contains a uniqe system of interest rates to include its two main rates: Canada’s Overnight Repo Rate and the Overnight Money Market Finance Rate. Both trade below Canada’s headline at 0.75 and Corra always trades above OMMFR. The Target for the overnight rate typically trades between Corra and OMMFR but today trades below at 0.500 from Corra’s 0.5204 and 0.5037 for OMMFR. What this means for today is not a signal to the BOC to lower or raise headline. Its low because the data reported for CORRA and OMMFR is one day old and the market corrects such imbalances quickly.
Corra trades between its 1 and 2 year monthly averages at 0.5167 and 0.5665. Above 0.5665 comes next the 3 and 4 year monthly averages at 0.6319 and 0.6831. Corra averages from 1 to 10 year are perfectly aligned from 0.5167 and 0.8628 at the 10 year.
Corra is not only oversold in every average but its location imparts the next BOC move. From 0.5200, Corra is 23 basis points from headline at 0.75 and 14 to 15 basis points from its first extreme prices at 0.3800 and 0.3700. Corra’s current price is low and particularly from its longer term averages.
If Corra is oversold then OMMFR is oversold to a higher degree because OMMFR trades below Corra as a protection to Canada’s interest rate system. All Corra targets point higher due to oversold from 0.5187 to 0.6400’s.
Polooz and the BOC conceivably has room to lower yet to drop would leave the averages to far extremes. Further, to lower would be the last bullet shot for the BOC and I’m not sure the BOC is ready to fire especially if the FED continues its raise Fed Funds messages. From past quarterly and monthly BOC reports, its always been the desire for the BOC to drop CAD lower by allowing the FED to raise and provide the heavy lifting.
The further aspect to not lower is the BOC fails our rules to lower. In light of the evidence, the BOC reamins on hold.
BRIAN TWOMEY ON TRADING 