BOC Recap: Loonie Rallies on Lack of Setup for an October Cut
September 4, 2019 10:22 AM
The BOC’s statement was less dovish than generally expected.
While some analysts thought that the Bank of Canada could cut interest rates at today’s meeting, punting the decision to October was always the more likely outcome. As my colleague Joe Perry noted in yesterday’s BOC Preview report, “The next full update of the Bank’s economy and outlook will not be until the October 30th meeting, so the bank may be likely to carry on with its “appropriate” language and continue to “monitor the data” until then.”
As it turns out, that’s exactly what Stephen Poloz and company opted to do. The BOC opted to leave interest rates unchanged at 1.75%, reiterating that “the current degree of monetary policy stimulus remains appropriate.” In its statement, the central bank noted that the economy was working close to potential, highlighted that housing activity was rising faster than anticipated, cited the escalating trade war as a major risk, and emphasized the importance of global developments (read: the US-China trade war) in driving monetary policy moving forward.
Most traders had expected that central bank to be more explicit in setting up a potential interest rate cut in its October meeting; in other words, the BOC’s statement was less dovish than generally expected.
As a result, the loonie saw a quick 40-pip rally against most of its major rivals, including the US dollar. Technically speaking, USD/CAD saw a potential false breakout above its 61.8% Fibonacci retracement near 1.3350 yesterday. The pair formed an bearish pin, or inverted hammer, candle yesterday, signaling an intraday shift from buying to selling pressure and marking a possible near-term top:
Source: TradingView, FOREX.com
After today’s drop, USD/CAD is testing a near-term bullish trend line around 1.3270. As traders continue to connect the dots between the Fed’s aggressive easing and the Bank of Canada potentially holding interest rates steady, the pair could break below this potential area of support and see a deeper retracement toward 1.3200 in the coming days.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.