While some analysts thought that the Bank of Canada could cut interest rates at today’s meeting, punting the decision to October was always the more likely outcome. As my colleague Joe Perry noted in yesterday’s BOC Preview report, “The next full update of the Bank’s economy and outlook will not be until the October 30th meeting, so the bank may be likely to carry on with its “appropriate” language and continue to “monitor the data” until then.”
As it turns out, that’s exactly what Stephen Poloz and company opted to do. The BOC opted to leave interest rates unchanged at 1.75%, reiterating that “the current degree of monetary policy stimulus remains appropriate.” In its statement, the central bank noted that the economy was working close to potential, highlighted that housing activity was rising faster than anticipated, cited the escalating trade war as a major risk, and emphasized the importance of global developments (read: the US-China trade war) in driving monetary policy moving forward.
Most traders had expected that central bank to be more explicit in setting up a potential interest rate cut in its October meeting; in other words, the BOC’s statement was less dovish than generally expected.
As a result, the loonie saw a quick 40-pip rally against most of its major rivals, including the US dollar. Technically speaking, USD/CAD saw a potential false breakout above its 61.8% Fibonacci retracement near 1.3350 yesterday. The pair formed an bearish pin, or inverted hammer, candle yesterday, signaling an intraday shift from buying to selling pressure and marking a possible near-term top:
Source: TradingView, FOREX.com
After today’s drop, USD/CAD is testing a near-term bullish trend line around 1.3270. As traders continue to connect the dots between the Fed’s aggressive easing and the Bank of Canada potentially holding interest rates steady, the pair could break below this potential area of support and see a deeper retracement toward 1.3200 in the coming days.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.