Toronto, Canada. Empty Old Toronto City Hall at Nathan Phillips Square. Image source: Elijah Lovkoff © 123RF.com
The highly anticipated January meeting of Bank of Canada's Governing Council left no surprises. The near-negative Overnight Rate was kept unchanged at 0.25 per cent, which is inlined with other major central banks' accommodative stances.
The Council also refrained from altering the scope of the Bank's quantitative easing programmes, which currently have a total envelope of $4 billion per week. Thus, the BOC is following its exact course of action that was reaffirmed during the Council's previous meeting.
Subdued inflation continues to represent a major concern for the Governing Council, which observed worsening price stability in the last month of 2020. As can be seen, headline inflation is still far off the desired 2 per cent target level.
Canada Inflation Rate. Image source: TradingEconomics.com
Meanwhile, the Council also projected negative growth rate in the first quarter of 2021, followed by a snap rebound in the three months to June. However, it also emphasised that these baseline scenarios are subject to a gradual easing of containment restrictions and consistent vaccine rollout.
These projections for subdued growth in the first quarter are underpinned by an existing trend of depreciating economic activity. The uptick in COVID-19 cases in conjunction with tightening labour market conditions are both contributing factors.
The Governing Council's monetary policy statement underscores this sentiment:
"Canada’s economy had strong momentum through to late 2020, but the resurgence of cases and the reintroduction of lockdown measures are a serious setback. Growth in the first quarter of 2021 is now expected to be negative. Assuming restrictions are lifted later in the first quarter, the Bank expects a strong second-quarter rebound."
Meanwhile, the Canadian dollar's immediate reaction was to rise against the greenback. As can be seen on the 4H chart below, the Loonie jumped by more than 0.50 per cent in the first minutes after the decision was published.
The USDCAD is currently probing a support that was last reached on the 18th of April 2018. The underlying price action continues to be depreciating while being contained within the boundaries of a massive descending channel.
The bearish momentum would become decidedly bearish if the price action remains trading below the major support level at 1.27000.
USDCAD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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