The Governing Council of the BOC is meeting this week to deliberate on its current monetary policy, too. It is expected to maintain the Canadian interest rate unchanged at its current level of 1.75 per cent.
The situation with the Canadian economy seems less clear-cut compared to the economic situation in the Eurozone.
It is because of this general uncertainty that the Council is unlikely to act on the most recent internal and external developments that were registered after its last monetary policy meeting, which took place on the 4th of December 2019.
Back then, the Governing Council stated that:
“The Bank’s October projection for global economic growth appears to be intact. There is nascent evidence that the global economy is stabilizing, with growth still expected to edge higher over the next couple of years. […] Indeed, ongoing trade conflicts and related uncertainty are still weighing on global economic activity, and remain the biggest source of risk to the outlook. […] inflation will increase temporarily in the coming months due to year-over-year movements in gasoline prices. The Bank continues to expect inflation to track close to the 2 percent target over the next two years.”
Currently, inflation in Canada is edging higher at 2.2 per cent, which is above the BOC's target rate. Nevertheless, this surge is within the central bank's projections and is likely to fall back within range as gasoline prices start to stabilise.
Canada Inflation Rate. Image source: TradingEconomics.com
Hence, the Governing Council is unlikely to lift the interest rate in the country solely because of this momentary distortion.
Meanwhile, the de-escalation of the international trade uncertainties following the signing of Phase One in the US/China trade negotiations is welcoming news to investors as the slump in global supply will not impede global growth as much.
In other words, the stabilisation of international trade is more than likely to benefit global growth, which, in turn, is going to stabilise the Canadian economy.
Thus, no significant changes in the monetary policy are anticipated to occur at the present rate as the Governing Council of the BOC continues to monitor internal and external developments in the economy.
The USDCAD pair is currently consolidating in a tight range just above the historical support level at 1.30240 but below the 13-day moving average. Volatility is expected to rise following the release of the BOC’s monetary policy statement on Wednesday.
USDCAD 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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