USDCAD rebounded post January Bank Of Canada Rate Meeting

The January Bank Of Canada Rate Meeting was a non-event, as the central bank left its overnight rate unchanged. The BOC shifted away from dovish to neutral last month and that has continued. What can we expect from USDCAD?

18 January, AtoZForex – The markets predicted it right, the Bank of Canada maintained its overnight rate at 0.5%. Correspondingly, the bank rate stayed at 0.75% and the deposit rate at 0.25%. According to the BoC’ full statement the global economy strengthened, while a number of prices commodities rose such as oil.

In contrast to the US economy, Canada still operates with material excess capacity. Despite employment growth remained strong, indicators point to a slack in the labor market. Also, the negative income and wealth effects will prolong. Even though, the resource sector’s change to past commodity price declines appear to be almost complete. The full statement of the bank explains further:

“The Canadian dollar has strengthened along with the US dollar against other currencies, exacerbating ongoing competitiveness challenges and muting the outlook for exports. Consumption is expected to remain solid, while residential investment will be tempered by previously announced changes to housing finance rules and by mortgage rates that have risen in response to higher bond yields. Federal and provincial fiscal measures are still expected to support growth in 2017.”

Canada’s inflation was lower than expected

In terms of inflation in Canada, it has been lower than anticipated in October. This is mainly due to the drop in food prices. Measures of core inflation came in below 2 percent, reflecting the material excess capacity in the Canadian economy. The bank’s statement indicated further:

“The Bank projects that Canada’s real GDP will grow by 2.1 per cent in both 2017 and 2018. This implies a return to full capacity around mid-2018, in line with October’s projection. As consumer energy prices rise and the impact of lower food prices dissipates, inflation is expected to move close to the 2 per cent target in the months ahead and remain there throughout the projection horizon while excess capacity is being absorbed.”

In overall the bank’s projections remained largely unchanged, BoC’s Governing Council predicts that the current stance of monetary policy is still appropriate. Hence, the bank kept the target for the overnight rate at 0.5%. The BoC Governing Council will continue to evaluate the ongoing development and its impact.

January Bank Of Canada Rate Meeting: What next for USDCAD?

From technical analysis perspective we see from 1H chart the pair rebound from 100SMA and continue downward. We expect further bearish price developments towards to 1.3020 level. If we see clear break below 1.3020 level our next support area is at 1.2970-1.2980 zone. For bullish scenario we have to see clear break above 1.3120 level towards to 1.3180-1.3190 zone. However, 100SMA is neutral, price is currently trading below 20SMA on 1H chart with neutral indication.

Bank Of Canada rate meeting 18 January USDCAD 1H (click to zoom in)

The next scheduled date for announcing the overnight rate target is 1 March 2017. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 12 April 2017.

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