USD/CAD Gyrates on BoC Rate Decision

Bank of Canada, USD/CAD, Economy – Talking Points

  • The Bank of Canada holds benchmark interest rate at 0.25%
  • USD/CAD shifts modestly lower on Canadian Dollar strength
  • Accommodative monteray policy stance reaffirmed in statement

As expected, the Bank of Canada held its interest rate at 0.25% Wednesday morning as the central bank continues to accommodate a supportive monetary policy following the COVID pandemic. The move is no surprise given recent comments from policy makers that pledged to keep interest rates low for a significant period of time. Still, USD/CAD moved modestly lower on the news as the Canadian Dollar strengthened.

USD/CAD Price Chart (1-Min Time Frame)

Chart created by Thomas Westwater with TradingView

The Bank of Canada’s policy stance has helped insulate the economic impacts of the COVID pandemic along with support from fiscal actions. Job growth has bounced back and the economy added nearly 250k jobs in August. The lift in the labor market has been strong, but the BOC statement shows concern with it being an uneven rebound. The first half of the year saw economic activity drop 11.5 percent in Q2 measured by real GDP according to the BoC. However, the statement notes, “the bounce-back in activity in the third quarter looks to be faster than anticipated in July.”

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The BOC also reiterated that the path of the economy remains dependent on the path of the virus. While social distancing measures have been effective, a possible resurgence of cases threatens to hamper economic activity. Household spending was a noted strongpoint in the BOC press release as goods consumption strength surprised. The bank also reaffirmed its commitment to continue large-scale asset purchases to keep rates suppressed across the yield curve. Tiff Macklem, Governor of the Bank of Canada, will speak Thursday on, “The uneven effects of COVID-19 on different sectors and people in the economy.”

–Written by Thomas Westwater, Contributor for DailyFX.com

Contact and follow Thomas on Twitter @FxWestwater

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