Bank of Canada Update Keeps Rates Unchanged, No Catalyst for Canadian Dollar
The Bank of Canada made no changes to its interest rate policy today as was widely expected. In its report, it discussed the slack in the Canadian economy and recent US weakness, but suggested that growth should pickup soon. With no threat to inflation in Canada and the Canadian economic outlook still murky, the Canadian dollar’s future will be determined by the Federal Reserve. The Bank of Canada will be on the sidelines for some time. It’s still a US dollar story.
It seems like the Bank of Canada is waiting for the US economic recovery to strengthen, which will boost exports in Canada, and the trickledown effect of what’s good for the US is good for Canada will boost Canadian growth in the latter half of the year. This seems to be the Bank of Canada’s plan, of course along with its simulative policy domestically.
The Bank of Canada prefers a weak Canadian dollar to boost exports and this limits any significant upside potential for the Canadian dollar in the short term. Basically, increases in the value of the Canadian dollar and its negative effect on exports, may simply delay the Bank of Canada from reacting towards a future interest rate hike down the road. The Bank of Canada mentioning the Canadian dollar is essentially talking it down or limiting upside. The Bank of Canada has made it clear, that it doesn’t want to be the catalyst for a stronger Canadian dollar and wants to benefit from a weak Canadian dollar policy.
Look for the USD/CAD to keep its momentum and grind higher, but slowly in the short term, and look for the US dollar to rally as we approach the latter half of the year driven by the FED’s interest rate hike expectations. The Bank of Canada will be on the sidelines and the Canadian dollar has no real catalyst in sight. Canadian dollar bulls only have a oil price rally as a saving hope.
By Admin | May 27, 2015 | Daily Update |
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