The Bank of Canada (BOC) recently announced their monetary policy decision, which might influence USDCAD trading in the long run. The Canadian central bank, headed by Governor Stephen Poloz, decided to keep interest rates unchanged at 1.00% as expected.
In addition, Poloz specified that the timing and direction of their next monetary policy moves will depend on how economic data turns out. He did say that downside risks to inflation remain present and important, although recent CPI reports have indicated a rebound in price level increases. He also mentioned that inflation is likely to stay within their expectations outlined back in January.
USDCAD Reaction and Outlook
As for the Canadian dollar, policymakers surprisingly didn’t express their concern about their depreciating currency. For commodity-dependent and export-driven nations like Canada, central bank officials are normally expected to start jawboning their currency when it starts to drop in value significantly. This is because a weaker local currency makes the country’s products relatively more expensive in the international trade market, thereby reducing demand and sales.
In this rate statement, there was no mention of the Canadian dollar or its weak levels. This sparked a USDCAD rally right after the rate decision, as traders no longer worried about possible intervention by the BOC in case the Loonie keeps selling off.
Overall, the BOC seems to be retaining its cautious stance for now despite some significant improvements in the Canadian economy, particularly when it comes to inflationary data. This could see further gains for USDCAD in the near term, especially if the uncertainty in the market persists and the BOC refrains from switching to a more hawkish stance.
Oil prices seem to have erased some of their recent rallies, as tensions in Ukraine and the threat of an oil supply shock has subsided in the past couple of days, lending more reason for the Canadian dollar to retreat.
To contact the reporter of this story: Jonathan Millet at firstname.lastname@example.org