The Bank of Canada’s Governor delivered an untypically upbeat speech at the conference in Ottawa dispelling Canada’s concerns about a rate cut.
The rate, which as mentioned, was held at 0.5%, painted a much more positive picture of Canada’s economy, although there still appears to be some concern surrounding the strength of Canada’s recovery. The news must be viewed as positive for the Canadian dollar.
The central Bank has recently been extremely prudent with its overview of Canada’s economy over the last few quarters. Regardless, the nation’s economy would appear to be recovering at a faster than expected pace.
The main drivers of this are Canada’s domestic productivity and inflation, being one of the main reasons for the omission of a rate cut.
Other key economic points which led the Bank of Canada to conclude not to cut rates included Canada’s quicker than anticipated return to full capacity. Initially in January policymakers had predicted growth to be slower, however during the Poloz’s announcement GDP Growth estimates were revised up to 2.6% from 2.1%; mainly due to housing projects in Toronto being brought forward. Demand for property has been spurred by speculators and investors with some areas seeing increases of up to 30%.
Poloz did, however, confirm that although it may be unlikely, the Bank of Canada did still have the ability to cut rates stating:
A rate cut, or further easing in policy, remains possible in the sense that there may be risks that are realized in the outlook.
CAD/USD Exchange Rate Reaction
Many had anticipated a much more dovish tone from governor Stephen Poloz, and before the rate announcement, many had thought that a Canadian interest rate cut was still a possibility. However, his admission provided only a hint of volatility; mostly caused by Trump’s admission and desire for a weaker dollar. A theme which since has seen the USD continue to weaken.
The main reason attributed to the USD weakening over the last few days related to comments by President Trump. Trump stated during a speech that he doesn’t like the USD current levels. Continuing, he said he would prefer if the Federal Reserve would keep interest rates at their current levels. The comment prompted a sell-off of the dollar and it multiple week lows. His comments are coming at a time when the USD is receiving little support due to geopolitical events and the ongoing scenario with North Korea.
GBP/CAD Rate Reaction
GBP/CAD reacted in a similar way, initially benefiting from a small weakness in the GBP following Carney’s speech before seeing the CAD enjoy a brief and inconsequential rally. The currency pair regardless has remained range-bound in the last 24 hours – trading between 1.6575 and hitting a high of 1.6657.
Featured image: Flickr (CC BY 2.0)
