The Bank of Canada (BOC) bullish forecast on the economy has fueled a loonie rally today. Softer data out of the U.S. and the rise of oil prices have helped the CAD appreciate versus the USD. The pair is trading at 1.2162. The BOC held the benchmark rate at 0.75 percent yesterday as expected by the market. The only uncertainty surrounded the tone the quarterly monetary policy report would have. Governor Stephen Poloz continues to be optimistic about the transitory effect of lower oil prices in the Canadian economy.
The BOC sees a weaker CAD boosting exports and helping the economy diversify away from an energy dependency. The rate cut in January was said to be a pre-emptive action and so far it seems like the right one. The central bank can sit back and let the macro events develop while still having some room to act if needed.
There was little data out of Canada today, but tomorrow the loonie will get a chance to keep soaring if the inflation data paints a positive picture. The expectations are for inflation in Canada to remain at 0.2%. Also released tomorrow will be the Canadian retail sales numbers. It will be interesting to see if Canada can break the “savings” curse that is present in British (0.7%) and American retail sales data (0.9%)