In a turn of sentiment, the Bank of Canada alluded to an abandonement of its up-till-recent commitment to the withdrawal of monetary stimulus. However, now with weaker growth creeping into the economy and signs that external risks remain buoyant, policymakers may be keeping their 1% benchmark rate a little while longer. This could spell disaster for the Canadian dollar, particularly against the US dollar.
The Canadian Turn
In one of the last decision for BOC Governor Mark Carney, the policymaker noted that there was less of an urgency when it came to monetary withdrawal. Why?
Economic growth in the world’s 12th largest economy is expected to be less than earlier anticipated. In current estimates, the Canadian economy is anticipated to gain by a woeful 2%. Although the figure isn’t dismal, it is lower than the previously anticipated 2.3%. The central bank additionally noted that the country won’t reach its full output potential until 2014 – a year later than anticipated. That recovery could be jeopardized should policymakers pre-emptively raise rates.
In addition to growth being relatively lackluster, consumer prices aren’t expected to be much of a threat for the near term. According to the Monetary Policy Report issued by central bankers, average inflation is anticipated to peak at 0.9% - hardly ammunition for any sort of rate hike.
External Factors Abound
Moreover, and aside from fundamental drivers, the Canadian economy remains mired in exposure to both the US and Europe. US economic growth remains hinged on budget battles in the next three months, with the question of $1.2 trillion in spending cuts still looming over the world’s largest economy. And, although the picture has improved in the European Union, it’s not a confirmation that things could turn for the worst.
Fundamental bearishness still remains an overwhelming theme in troubled nations like Greece, Spain and Italy – even if their short term debt costs have declined in recent weeks.
Levels To Consider
Given the session’s surge above 0.9950, a close above the next viable resistance at 0.9971 should open scope for an extension higher towards the 1.0056 November 16th session high. The barrier could provide some downside impetus – with a further break higher activating the 1.0150 figure.
The Canadian Turn
In one of the last decision for BOC Governor Mark Carney, the policymaker noted that there was less of an urgency when it came to monetary withdrawal. Why?
Economic growth in the world’s 12th largest economy is expected to be less than earlier anticipated. In current estimates, the Canadian economy is anticipated to gain by a woeful 2%. Although the figure isn’t dismal, it is lower than the previously anticipated 2.3%. The central bank additionally noted that the country won’t reach its full output potential until 2014 – a year later than anticipated. That recovery could be jeopardized should policymakers pre-emptively raise rates.
In addition to growth being relatively lackluster, consumer prices aren’t expected to be much of a threat for the near term. According to the Monetary Policy Report issued by central bankers, average inflation is anticipated to peak at 0.9% - hardly ammunition for any sort of rate hike.
External Factors Abound
Moreover, and aside from fundamental drivers, the Canadian economy remains mired in exposure to both the US and Europe. US economic growth remains hinged on budget battles in the next three months, with the question of $1.2 trillion in spending cuts still looming over the world’s largest economy. And, although the picture has improved in the European Union, it’s not a confirmation that things could turn for the worst.
Fundamental bearishness still remains an overwhelming theme in troubled nations like Greece, Spain and Italy – even if their short term debt costs have declined in recent weeks.
Levels To Consider
Given the session’s surge above 0.9950, a close above the next viable resistance at 0.9971 should open scope for an extension higher towards the 1.0056 November 16th session high. The barrier could provide some downside impetus – with a further break higher activating the 1.0150 figure.
