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BoC Holds Rates Seeing Uncertainty on Trade; Canadian Dollar Falls Slightly

BoC Holds Rates Seeing Uncertainty on Trade; Canadian Dollar Falls Slightly

Dylan Jusino, Contributor


Talking Points:

- The Bank of Canada (BoC) left the the overnight lending rate unchanged at 1.25%, as was widely expected (rates markets were pricing in a 88% chance ahead of time).

- A cautionary outlook on trade policy and low inflation led the BOC to hold interest rates at this meeting

- See the DailyFX Economic Calendar for upcoming economic data and for a schedule of live coverage see the DailyFX Webinar Calendar.

See our longer-term forecasts for the US Dollar, Euro, British Pound and more with the DailyFX Trading Guides

In January, the last monetary policy meeting, the BoC unveiled a “dovish hike.” This meeting produced a different result where the central bank held the overnight lending rate at 1.25%. Though this was not surprise to markets. Just before the decision markets priced around an 88% chance of the BoC holding. Looking ahead, markets adjusted the chances of another hike from the Central Bank in the first half of 2018 to 60% down from 80% back on February.

Since the BoC released their a monetary policy report at the last meeting, no official report was released at this meeting. However, there was an official press release. We have noted the most important points below:

  • Inflation: Inflation is running close to the 2 per cent target and the Bank’s core measures of inflation have edged up, consistent with an economy operating near capacity…Inflation is fluctuating because of temporary factors related to gasoline, electricity, and minimum wages. ”
  • Trade Policy: “Global growth remains solid and broad-based…However, trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks.”
  • Trade balance: “The gain in imports mainly reflected stronger business investment, which adds to the economy’s capacity.”
  • Housing: “…softer [housing] data at the beginning of this year, indicate some pulling forward of demand ahead of new mortgage guidelines and other policy measures.”
  • Houshold debt: “…household credit growth has decelerated for three consecutive months. The implications of the recent federal budget for the outlook for growth and inflation will be incorporated in the Bank’s April projection.”

As in previous meetings, the Central Bank stated that “economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed.” As of the time this was written, markets anticipate a meager 40% chance that the BoC will raise rates at the next meeting in April. We will be closely monitoring the developments in the recent tensions over global trade as it impacts future decisions on monetary policy. Also worth considering, much uncertainty remains around the developments of NAFTA negotiations. This was not mentioned in BoC press release.

Price Chart 1: USD/CAD 30-minute Chart (Marach 3 to 7, 2018)

Going into today’s monetary policy meeting markets were not expecting any significant developments out of the Bank of Canada. This was largely reflected in USDCAD following the release of the Bank’s official statement. With little forward guidance provided the Loonie trades in a narrow range. At the time that this was written USDCAD traded at 1.2936.

Read more: USD/CAD Needs a Hawkish BOC For Losses to Continue

--- Written by Dylan Jusino, DailyFX Research

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