The Bank also said that they would commit to leave rates at 0.25 percent through the end of June 2010, though this was "conditional on the inflation outlook." There had been some evidence that the Bank could reduce rates today, as Credit Suisse index swaps were pricing in a 50 percent chance of such a move. Nevertheless, the swift plunge in the Canadian dollar upon the announcement indicates that for the most part, the decision was unexpected.
Looking further into the Bank's policy statement, they are clearly concerned about the synchronized deterioration in the global economy, especially as worsening credit conditions "have spread quickly through trade, financial, and confidence channels." As a result, the Bank projects that the Canadian economy will contract 3.0 percent in 2009, with recovery projected to begin in Q4 at a gradual pace. Further down the line, the economy is projected to grow by 2.5 percent in 2010 and 4.7 percent in 2011.
The Bank also published more specific inflation forecasts, saying that they expected total CPI to trough at -0.8 percent in Q3 2009 while core inflation is anticipated to slump through 2009, and both core and total CPI are projected to gradually return to their 2 percent target in Q3 2011. All told, the Bank says that overall risks to their projections are "tilted slightly to the downside."
Looking to USD/CAD, the drop in the Canadian dollar helped push the pair above yesterday's highs near 1.2400 for a test of immediate resistance at the psychologically important 1.2500, where we also see the 50 SMA. With the DXY index still very much in an uptrend, a break above 1.2500 opens the door for a rally toward the 2008/2009 highs around 1.3000.
See how these moves fit in with our USD/CAD Monthly Trading Forecast.
Source: FXTrek Intellicharts
Source: FXTrek Intellicharts
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