Summary:
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BOC make dovish tilt after keeping rates unchanged
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GC “warrants a policy rate that is below its neutral range”
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CAD falls across the board; USDCAD > 1.34
There’s been a pretty negative reaction in the Canadian dollar to the latest rate decision from the Bank of Canada (BOC), with the Loonie falling lower against all of its peers after what appears to be a clear dovish shift. As was almost unanimously expected the BOC kept rates unchanged at 1.75%, but in the absence of a press conference or financial projections the policy statement was always likely to provide the biggest market moving news and this is exactly what happened.
The Canadian dollar has swooned since the release and trade lower on the day against all its peers other than the AUD. Source: xStation
The key change in the statement came in the removal of the line that read: “Governing Council continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target.” This was replaced by: “Governing Council judges that the outlook continues to warrant a policy interest rate that is below its neutral range.”
This change represents a pretty significant shift in the perception of how the bank views interest rates and is clearly dovish. Other selected comments from the statement are as follows:
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The slowdown in the global economy has been more pronounced and widespread than forecast
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Trade tensions and uncertainty are weighing heavily on confidence and economic activity
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Slowdown in the fourth quarter was sharper and more broadly based
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Says both exports and business investment also fell short of expectations in Q4
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It now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January
The USDCAD has broken above the 1.34 handle following the release with the market rallying to its highest level in over 2 months. This move began in earnest last Friday when the latest growth figures for Canada disappointed and today’s news has provided a further boost. In breaking above 1.3380 the market has breached prior resistance and there’s little to suggest this move will fade anytime soon as it is based on weakening fundamentals from Canada.
USDCAD has rallied to its highest level since the start of the year following the dovish shift, taking out prior resistance around 1.3380 along the way. Source: xStation
