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CAD swoons on dovish BOC; USDCAD revisits 1.34

15:38 5 December 2018

 

Summary:

  • BOC keep rates unchanged as widely expected

  • Dovish tweaks in the statement caused CAD to drop sharply lower

  • USDCAD hits 18-month high and revisits 1.34

 

Despite the Bank of Canada announcing that they will leave their key interest rate unchanged there’s been a swift move in the canadian dollar following the release, with some tweaks in the statement causing a wave of selling. The overnight rate has been confirmed as remaining at 1.75% for the second consecutive month, as was widely expected by the market and forecast by all 23 economists surveyed by Bloomberg.

The Canadian dollar is coming under pressure following the announcement with CAD now down by 1% on the day against both GBP and USD. Source: xStation

 

The surprise came in what appears to be a clear dovish shift from the rate-setters with several comments in the accompanying statement suggesting the bank will pursue a lower future rate path. Selected comments from the release are shown below:

 
  • There may be more room for non-inflationary growth

  • Future policy stance depends on oil, investment and capacity

  • Data shows economy has less momentum going into Q4

  • Expected CPI to ease more than forecast in the coming months, due to lower gasoline prices

  • Repeats that rate will need to rise to neutral

 

The most dovish comments here are that the economy has less momentum going into Q4 and perhaps more importantly that statement that future policy stance depends on oil, amongst other things. This is telling as the price of crude has dropped by more than a third in the past couple of months and as the release points out this may see an easing in inflation.

 

The USDCAD has rallied strongly since the release with the pair moving up above the early summer highs and you have to go back to June 2017 to find a higher price. Price has come within a whisker of the 1.34 handle, stopping just 2 pips shy after a rally of more than 100 pips since the statement was released.

USDCAD has popped higher following the announcement with price reaching its highest level since June 2017. Source: xStation  

 

This content has been created by X-Trade Brokers Dom Maklerski S.A. This service is provided by X-Trade Brokers Dom Maklerski S.A. (X-Trade Brokers Brokerage House joint-stock company), with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. X-Trade Brokers Dom Maklerski S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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