USD/CAD – Bank of Canada Stands Pat – CAD Plummets

No Surprise

As expected the Bank of Canada (BoC) held its benchmark interest rate steady (+1.25%) this morning as it warned “rising geopolitical and trade conflicts risk undermining global growth.”

The BoC expects inflation will move higher this year before returning close to its +2% target in 2019.

“Despite strengthening global demand, growth of business investment in export-oriented goods industries is anticipated to be restrained by elevated uncertainty around trade policy, regulatory concerns and incentives to shift investment to the United States following the U.S. tax reform,” the Bank of Canada said in a policy report that accompanied the rate decision.

Note: The BoC has raised its key interest rate three times since mid-2017, most recently in January.

It said on Wednesday that it anticipates higher rates will be warranted over time but added that it would remain cautious and use incoming economic data to guide its decisions.

Loonie Takes a Dive

CAD (C$1.2638) has come under immediate pressure, falling -80 pts outright to take shy of strong dollar resistance at C$1.2650.

Press coverage comments: “Dovish”

Bank of Canada’s Poloz:

  • Rates may need to remain below neutral range, economy not yet able to stay at full capacity on its own
  • Seen considerable progress in last 12 months
  • Wage data has been encouraging;
  • Will monitor incoming data very closely.
  • Rates need to move higher over time to keep CPI target;
  • Deliberations are focused on appropriate pace of rate hikes
  • Firms are hesitating to invest in new capacity, due to Nafta, transport bottlenecks
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    Dean Popplewell

    Dean Popplewell

    Vice-President of Market Analysis at MarketPulse
    Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
    Dean Popplewell