USD/CAD Gains After Bank of Canada Holds Rates Steady, Retains Dovish Guidance
BANK OF CANADA DECISION:
- Bank of Canada stands pat on monetary policy, keeping its key interest rate unchanged at 4.50%, in line with expectations
- The bank retains a bearish guidance, signaling that it will hold borrowing costs at current levels while assessing the cumulative effects of past tightening measures
- USD/CAD extends gains after BoC’s decision
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The Bank of Canada today concluded its second monetary policy gathering of 2023. In line with consensus estimates, the institution led by Tiff Macklem voted to keep its benchmark interest rate unchanged at 4.50%, after raising borrowing costs at each of its previous nine meetings.
In its statement, BoC said that the economy has evolved as anticipated, noting that the labor market continues to be very tight, and that inflation remains elevated, but underscored that CPI is expected to moderate and come down to around 3% in the middle of the year on the back of weaker growth in the coming quarters.
In terms of the policy outlook, the bank retained a dovish guidance, indicating that it will hold borrowing costs at current levels, conditional on economic developments evolving broadly in line with forecasts. This may be a sign that the terminal rate has been reached - a negative outcome for the Canadian dollar.
Immediately after the central bank released its decision, USD/CAD extended gains, rising to its highest level since November 2022 near the 1.3800 handle. With the Fed hell-bent on extending its tightening campaign and BoC on pause for the foreseeable future, the Canadian dollar is likely to exhibit a bearish bias in the near term. This means USD/CAD could soon retest its 2022 highs.
USD/CAD FIVE-MINUTE CHART
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