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USD/CAD Channels Lower After Bank of Canada Stands Pat on Rates

USD/CAD Channels Lower After Bank of Canada Stands Pat on Rates

Talking Points:

- Bank of Canada keeps its benchmark interest rate at 0.50% in line with expectations

- USD/CAD falls after BoC removes dovish remarks from its policy statement.

- See the DailyFX Economic Calendar for Wednesday, December 7, 2016.

As widely expected Bank of Canada (BoC) stood pat on monetary policy and maintained its key overnight lending rate a 0.5 percent after convening for its December policy meeting. BoC has remained on the sidelines through 2016 taking on a wait-and-see approach after lowering rates twice in 2015 in response to a collapse in oil prices that sent the energy-reliant Canadian economy into a tailspin.

The decision to hold rates steady today comes after the latest string of economic data beat consensus and after oil prices sustained a moderate rally in the wake of OPEC’s decision to slash output. At the same time, expectations the U.S. will engage in heavy fiscal stimulus has somewhat brightened the economic outlook for Canada.

Although the Canadian economy contracted 1.6% in the second quarter of 2016 following the Alberta wildfires, the economy has been resilient and rebounded to a 3.5% annualized rate in the third quarter tempering worries that recovery has been thrown off course.

The language of the policy statement was largely neutral and indicated that the current stance of monetary policy remains appropiate as CPI inflation has picked up and as the dynamics of growth are consistent with what the Bank had anticipated. Policy makers, however, struck a tone of caution and noted that significant amount of economic slack remains in the country as business investment and non-energy goods exports have failed to bounce back steadily.

See the DailyFX economic calendar for Wednesday, December 7, 2016

Chart 1: USD/CAD 1-minute Chart (December 7, 2016 Intraday)

Following the release of the rate decision, USD/CAD trended lower falling as low to C$1.32575 as the tone of the policy communique softened concerns about the state of the economic recovery.

Read more: USD/CAD Awaits Neutral BOC Today; ECB Has High Burden of Proof

--- Written by Christopher Vecchio, Currency Strategist and Diego Colman, DailyFX Research

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