The Bank of Canada (BOC) held its meeting yesterday. This time, there were no expectations of a rate cut, from the 0.25% benchmark that was set in March. But the Canadian economy is showing signs of weakness, similar to what we have been seeing in Europe in the last two months, so the BOC was expected to turn slightly dovish today, acknowledging the recent weakness. The USD/CAD has turned bullish in the last two days, climbing more than 200 pips, as crude oil crashes lower.
Highlights of the Bank of Canada rate decision
- No change in the 0.25% overnight rate, as expected
- Both the global and Canadian economies are evolving broadly in line with the scenario outlined in July
- The rebound in the United States has been stronger than expected, while the economic performance among emerging markets has been more mixed
- The BOC continues to expect the recuperation phase to be slow and choppy, as the economy copes with ongoing uncertainty and structural challenges.
- The CPI is expected to remain well below target in the near term
- Reaffirmation that the BOC “will hold the policy interest rate at the effective lower boundary until economic slack has been absorbed, so that the 2% inflation target is sustainably achieved”
- There is hardly anything new here. There were no changes in the BOC policy, and the language on forward guidance is entirely unchanged. There are some CAD bids waiting in the wings until after the decision, as it plays catch-up with the other commodity currencies. I expect more of that in the minutes ahead.
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