cad fundamentals

Canadian Dollar Surges as Bank of Canada Leaves Door Open to QE If Nominal Interest Rates Fall Negative

Thursday, 23 April 2009 21:31:06 GMT  |  Terri Belkas, Currency Strategist

The Canadian dollar was the second strongest of the majors, leading USD/CAD to fall sharply from a region of resistance at 1.2379-1.2495. Canadian retail sales unexpectedly rose 0.2 percent in February, suggesting that consumers haven't been entirely deterred by soaring job losses and slowing business activity. The bigger market-mover, though, was the Bank of Canada's Monetary Policy Report, as they left the door open to quantitative easing (QE) and credit easing if nominal interest rates start to fall below zero. Indeed, the Bank stated that while they could cut rates to zero in theory, it would ultimately "eliminate the incentive for lenders and borrowers to transact in markets, especially in the repo market." As a result, inflation reports will be key to gauging whether or not the Bank of Canada will go the route of QE, but with total CPI at 1.2 percent (YoY) and the Bank's core CPI at 2.0 percent (YoY), there doesn't seem to be potential for such measures in the near-term.

Related Article: Canadian Dollar Tumbles as Bank of Canada Surprises with 25bp Cut to 0.25%


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