Canadian dollar extends gains after BoC decision
The Canadian dollar has edged higher on Thursday. In the North American session, USD/CAD is trading at 1.3470, down 0.33%. The Canadian dollar posted strong gains a day earlier, rising 0.58%.
Bank of Canada maintains rates
The Bank of Canada rate meeting didn’t turn any heads, although it did give a boost to the Canadian dollar, sending it to a two-week high against the greenback. The BoC kept the cash rate unchanged at 5% for a fifth straight time.
The rate statement indicated that BoC policy makers remain concerned about high inflation and don’t expect a smooth ride to achieve the 2% target. BoC Governor Macklem stated that “future progress on inflation is expected to be gradual and uneven, and upside risks to inflation remain” and that the BoC needed to see “further and sustained easing in core inflation”. Macklem provided the bottom line of the meeting, saying that “it’s still too early to consider lowering the policy interest rate”.
The BoC hasn’t acknowledged that rates have peaked, but the rate statement is a strong signal that the days of tightening are over and the key question is the timing of a rate cut. The BoC, like the Fed, is being very cautious about lowering rates as it wants to avoid at all costs a nightmarish scenario of cutting rates, only to see inflation reverse directions and move higher.
When can we expect a rate cut? The next meeting is in April and it’s doubtful that the BoC will feel comfortable trimming rates then unless inflation surprises with a dramatic fall. A summer rate cut is a more likely scenario, but much will depend on the health of the economy and the inflation outlook.
The US releases nonfarm payrolls on Friday. This release used to be hotly anticipated by investors but has been overshadowed somewhat by inflation data. Nonfarm payrolls soared in January at 353,000, crushing the estimate of 180,000. The market estimate for February stands at 200,000.
USD/CAD Technical
- USD/CAD is testing support at 1.3495. Below, there is support at 1.3429
- 1.3550 and 1.3616 are the next resistance lines
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