Originally published by AxiTrader
The Bank of Canada left its main rate unchanged at 0.50 %, as expected by the market. The CAD/USD declined nevertheless, as the central bank cut growth forecasts and Governor Poloz mentioned that the bank was discussing a rate cut.
The BoC now expects a GDP increase of 2.0 % in 2017 vs. 2.2 % previously, and 2.1 % in 2018 (unchanged). Quarter-over-quarter, the BoC expects a GDP print of 3.2 % in Q3 vs. 3.5 % previously, and 1.5 % in Q4 (vs. 2.8 % previously). They also revised their inflation forecasts lower and now anticipate a 1.9 % rise in inflation in 2017 (vs. 2.1 % previously) and 2.0 % in 2018 (vs. 2.1 % previously).
Also notable is the expected decline in exports. The BoC sees exports increasing by 0.8 % in 2017 (vs. 1.1 % prev.) and 1.0 % in 2018 (vs. 1.3 % prev).
In their rate statement, the central bank noted that growth expectations have decreased due to slower near-term housing resale activity and a decline in exports. While recent export data has improved, it is not strong enough to make up for the lost ground during H1 of 2016, according to the BoC. Further, the bank expects exports to decline further due to a lower estimates of global demand, decrease in exports to the US and competitiveness challenges for domestic firms.
Overall, the BoC considered it appropriate to keep rates unchanged, but warned that there remains a heightened uncertainty due to lower growth expectations and a later than expected close of the output gap.
The statement itself did not surprise the market at all, and the Canadian Dollar strengthened initially. However, what put it back under pressure were the comments from Governor Poloz during the press conference. Poloz said "that given the downgrade of the outlook, the council actively discussed the possibility of adding more monetary stimulus at this time, in order to speed up the return of the economy to full capacity".
Poloz' language during the press conference was more dovish than the statement was, and signalled to the market that a rate cut is on the table. USD/CAD jumped from 1.30 to 1.3140 after Poloz' comments, and while short-term techs remain bearish, a daily close above 1.3140/45 resistance would be notable and confirm the double bottom at 1.30 (previous low @ September 22). And why is 1.3140/45 so important? A look at the Daily chart will reveal it.
