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Bank of Canada Warns of Greater Downside Inflation Risk, Keeps Interest Rate at 1%

Bank of Canada Warns of Greater Downside Inflation Risk, Keeps Interest Rate at 1%

Benjamin Spier, Technical Strategist

Talking Points:

  • BoC warns of greater downside risk to inflation, keeps interest rate at 1%
  • Canadian inflation fell below the target range in October
  • USD/CAD rises temporarily on central bank comments

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The Bank of Canada kept the target interest rate at 1.00% in December and released no forward-looking statement on the interest rate, but the Canadian Dollar fell temporarily against the US Dollar on the BoC’s comment that there is a greater downside risk to inflation.

The annual inflation rate fell to 0.7% and back below the BoC’s target 1%-3% inflation range for the first time in five months in October. Therefore, the central bank’s renewed worries over price levels should not have surprised markets, which may be why the Loonie losses were temporary.

The Bank of Canada also said today that growth is broadly in line with forecasts, and the central bank expects full output around the end of 2015. In November, BoC Governor Poloz said that current stimulus remains appropriate and he would like inflation to be higher.

USD/CAD set another new 3-year high at 1.0697 after the release, but the pair has since fallen back below 1.0680. DailyFX’s daily technicals place the next resistance level at 1.0709, by a close from February of 2010.

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USD/CAD 1-Minute: December 4, 2013

Bank_of_Canada_Warns_of_Greater_Downside_Inflation_Risk_Keeps_Interest_Rate_at_1_body_Picture_1.png, Bank of Canada Warns of Greater Downside Inflation Risk, Keeps Interest Rate at 1%

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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