The Governing Council of the Bank of Canada met today and decided to maintain the interest rate in the country unchanged at its current level – 1.75 per cent. The decision was vastly anticipated and thus did not surprise the market.
The monetary policy statement following the release of the decision, however, was noticeably less optimistic than expected, which weighed down on the Canadian dollar as a consequence.
“Data for Canada indicate that growth in the near term will be weaker, and the output gap wider than the Bank projected in October. […] Exports fell in late 2019, and business investment appears to have weakened after a strong third quarter. Job creation has slowed and indicators of consumer confidence and spending have been unexpectedly soft.”
The Committee stated that it projects moderate growth in the fourth quarter of 2019, barely reaching 0.3 per cent, which would measure a considerable fall compared to the 1.7 per cent that was recorded at the end of Q3 2019.
Canada GDP Growth Rate. Image source: TradingEconomics.com
Overall, the Committee has toned down its stance on the current economic situation in Canada, and at present, it appears that the central bank might have to become more accommodative in the future if the situation worsens.
Following the release of the statement, market analysts began weighing on the likelihood for a new interest rate cut by the BOC to occur further down the line in 2020, which would undoubtedly weaken the loonie.
The chances for that actually taking place have somewhat modestly increased, however, there is no reason for fears to rise presently, as the international economic situation seems to be exiting the current soft patch and optimism is increasing.
As the global economic conditions begin to stabilise, the spill-over effect is going to bolster investments in the Canadian economic cycle too.
Nevertheless, the Canadian dollar suffered momentary losses following the release of the monetary policy statement, and the USDCAD pair climbed by more than 0.80 per cent on the news.
The price is currently attempting to establish a new markup, however, before the existence of a bullish trend can be confirmed, the price has to successfully break out above the resistance level at the 61.8 per cent Fibonacci.
USDCAD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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