In the highly anticipated monetary policy meeting of the Bank of Canada's Governing Council from today, it was unsurprisingly decided that the near-negative Overnight Rate will be kept unchanged at 0.25 per cent.
The Council also admitted it will preserve the scope of its quantitative easing (QE) programme, which is currently going on at the pace of at least $4billion per week. The extraordinary forward guidance is designed to foster growth by supporting jobs creation and inflation converging towards the 2.0 symmetric target level.
Seeing as how headline inflation in Canada remains subdued at 1.0 per cent, which falls way below BOC's mid-term goals, the Council expressed readiness to maintain its accommodative monetary policy stance for as long as it is needed to improve price stability.
"The global economy is recovering from the economic effects of COVID-19, albeit with ongoing unevenness across regions and sectors. […] CPI inflation is near the bottom of the 1-3 percent target band but is likely to move temporarily to around the top of the band in the next few months. The expected rise in CPI inflation reflects base-year effects from deep price declines in some goods and services at the outset of the crisis a year ago, combined with higher gasoline prices pushed up by the recent run-up in oil prices. "
The rate of recovery in Canada's southern neighbour is clearly outpacing the country's own stabilisation, which is starting to be reflected on the market. As can be seen on the 4H chart below, the massively undervalued greenback is finally starting to strengthen against the loonie.
After completing a Bearish Channel recently, the USDCAD is now teasing the possibility of creating an uptrend next. This can be inferred from the ongoing development of a Pennant pattern around the recent dip.
The Pennant is morphing into a bottleneck just below the 200-day MA (in purple) and the 100-day MA (in blue). On the condition that the price action manages to break out higher, this will set a very strong indication that, indeed, the underlying bullish sentiment is gaining strength.