Markets are trading higher this morning; central bank actions are removing some uncertainty and we are seeing risky assets rally as a result. The Canadian dollar reached a new high overnight and is trading 25 basis points above yesterday’s close against the greenback.
The US Federal Reserve announced QE3 in yesterday’s FOMC meeting, just as anticipated. The Fed will commence buying $40bn/month in mortgage backed securities (MBS) and noted if the labor market does not substantially improve, additional purchases and policy tools will be utilized. In effect, before they have even been able to implement QE3, they are talking QE4.
The Fed’s launch of QE3 combined with the ECB’s planned bond-buying program is pushing the Euro to fresh heights against both the USD and CAD. We have seen the Euro rise 2.5-cents and 3.5-cents against the CAD and USD since Wednesday.
Commodities are enjoying a bid given the new stimulus being pushed out by the Fed. Crude Oil surged 2% overnight to reach $100/bbl while Gold has risen 4% since the beginning of the week.
The TSX is trading 1.3% higher while the Dow has gained nearly 1% after trading 2% higher yesterday. Commodities and commodity currencies are strong, all at the expense of the US dollar.