CAD gains as BoC holds rates steady

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BoC_Canada Inflation

Image via © Bank of Canada 9151 / Flickr

As widely expected, the Bank of Canada left the benchmark interest rates unchanged at 0.50%. In the statement, the BoC noted that financial market volatility was abating and that the fourth quarter economic activity wasn’t as weak as expected initially. The main risk in the BoC’s statement was a reference to the Canadian dollar’s recent appreciation against the US Dollar. However, the BoC painted a positive view noting that the Loonie’s appreciation came as commodity prices bounced. The BoC noted that it would wait for the government budget plans due for release on March 22nd and would take a call based on the expected impact on the promised fiscal stimulus.

BoC Overnight Rates - 0.50%
BoC Overnight Rates – 0.50%

On the economic outlook, the Bank of Canada’s near-term outlook did not change much as the fourth quarter numbers came out better than expected. However, despite Oil prices showing signs of a short term bottom and trading above the $30 handle, the BoC said that low Oil prices could continue to keep growth subdued in Canada while business investments continue to remain weak as companies struggle in dealing with the commodity price shock.

The Canadian dollar posted strong gains after the BoC’s statement which is not followed up by a press conference. USDCAD is currently down -0.89% for the day, with the US Dollar trading at C$1.3315. The BoC is due to meet next month when it will give out fresh quarterly forecasts including having the time to digest the Canadian government’s new fiscal budget. Meanwhile, US Crude Oil inventories report showed an increase of 3.90 million barrels more than the forecasted 3 million barrels. However, WTI Crude Oil prices continue to trade higher as Oil is up 4.20% for the day trading at $37.7 a barrel.

USDCAD - Intraday Chart, 09/03/16
USDCAD – Intraday Chart, 09/03/16

With the BoC rate decision done with; the markets now look towards the RBNZ’s rate statement due in a few hours. Economists expect the RBNZ to hold rates steady at today’s meeting but the Kiwi could be talked down given that the NZDUSD has been gaining steadily since the previous RBNZ meeting.

Overall, the currency markets are currently in a strong risk-on mode with the AUD, CAD and the NZD clearly emerging as the biggest performers for the day while the Yen erased previous gains and is currently the weakest, down -0.28% for the day. The Euro which was weaker for the most part of the day on lack of any fundamentals to go by was also showing signs of a rebound gaining 0.04% against the US Dollar at the time of writing. But the single currency could remain range bound ahead of the ECB’s decision tomorrow where expectations call for further rate cuts and a possible expansion of the ECB’s QE program.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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