Bank of Canada Holds Rates Flat - USD/CAD Bounces
Bank of Canada, USD/CAD Talking Points:
- The Bank of Canada held rates flat at this morning’s rate decision, while keeping QE purchases to C$3 Billion/month.
- USD/CAD put in a mild bounce on the back of the statement.
- The focus now begins to shift to the FOMC, set for next Wednesday.
This morning brought a Bank of Canada rate decision and after the BoC’s outing in April, there was a lot of attention as to whether the bank would continue to pare back pandemic policy. That did not happen this morning, as the BoC held rates flat at .25% while also continuing QE at a C$3 Billion per week.
The bank brought surprise at their April rate decision when they became one of the first large Central Banks to begin talking about post-pandemic policy. In the US, as a brisk recovery continues to gain steam the Federal Reserve has yet to engage with the topic of tapering or normalizing policy. The Federal Reserve’s next policy meeting is next Wednesday, so additional details may be forthcoming there.
From the BoC, the key part of this morning’s statement is quoted below, with highlight added for emphasis as this sounds very similar to the Fed’s current take on inflation.
As expected, CPI inflation has risen to around the top of the 1-3 percent inflation-control range, due largely to base-year effects and much stronger gasoline prices. Core measures of inflation have also risen, due primarily to temporary factors and base year effects, but by much less than CPI inflation. While CPI inflation will likely remain near 3 percent through the summer, it is expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure.
In market-related responses, USD/CAD put in a mild bounce after the release of this statement. The Canadian Dollar went on a strong run following the bank’s April rate decision, and there’s been some harboring bearishness in USD/CAD as the divergence between US and Canadian Monetary Policy was quite pronounced after that April rate decision. With the BoC taking a more mild approach this morning, the door can remain open to reversal themes in the pair, particularly if the Fed begins to talk about post-pandemic policy moves at next week’s FOMC rate decision.
USD/CAD Four-Hour Price Chart
--- Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.