Reuters: Canadian dollar hits two-week low as Bank of Canada takes dovish turn
Canada’s central bank held interest rates steady at 1.75% as expected but left the door open to a possible cut over the coming months to help the economy weather the damaging effects of global trade conflicts.
“The loonie has sold off post-statement due to the fact that the BoC is beginning to witness the effects of external headwinds on the Canadian economy,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada.
The central bank’s “dovish stance” raises expectations for policy easing, “especially if the economic data and external climate deteriorates further,” Harvey said.
Money markets moved to fully price in a rate cut as early as July. Before the announcement, chances of a cut next year were seen at less than 50%. BOCWATCH
It seems that expectations of the rate cuts next year is taken into account in the price, and BoC still kept 'Neutral' stance on the rates. Natural bounce back can be expected shortly against the overheated mood in FX market. (Of course, there is a possibility BoC may withdraw neutral stance, changing to pessimistic as their concerns in the future.)
BNN Bloomberg: Bank of Canada holds rates, warns economy will be 'tested'
The statement and the fresh batch of more pessimistic growth forecasts will raise questions about the central bank’s commitment to a neutral stance on rates, particularly in the face of global easing in many other countries that has made the Bank of Canada an outlier. If the Federal Reserve lowers its interest rates later today, as expected, the Bank of Canada would have the highest policy rate in the industrialized world.
In the meantime, our trend and momentum signals indicate CAD surging against GBP and EUR in a coming week.
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