- The Bank of Canada decided to leave the interest rate unchanged at 1.25% as expected.
- The statement expresses worries about trade but still sees higher interest rates.
- The USD/CAD initially moved up but is going nowhere fast.
The Bank of Canada left the interest rate unchanged at 1.25% as widely expected. They do see a path of higher interest rates in the future, leaving the hawkish bias in the last paragraph. Rates are still expected to rise.
However, the team led by Poloz elevated their tone about international trade. Without directly mentioning Trump, they said that trade developments are a significant and growing source of uncertainty. This is new language that initially sent the USD/CAD higher but limited the gains.
The pair rose from 1.2920 to 1.2940 before bouncing back and holding onto some of these minor gains.
BOC member Timothy Lane will discuss the decision tomorrow. Governor Poloz will also speak tomorrow. They may both shed some light on the event.
On Friday, Canada publishes the jobs report for February alongside the US Non-Farm Payrolls.
BOC Background
The Bank of Canada was expected to leave the interest rate unchanged at 1.25% after raising it to this level back in January. Signs of an economic slowdown were seen in the retail sales report and also in the recent GDP publication.
Perhaps more importantly, trade relations with the US are problematic. The tariffs that Trump announced on steel and aluminum have hurt the Canadian Dollar. The Administration later tied the tariffs to the NAFTA negotiations by saying Canada and Mexico may get exemptions if a new NAFTA deal is reached. BOC Governor Stephen Poloz already referred to these negotiations over and over again, stressing they were a source of worry.
USD/CAD Flirting with overbought territory
The USD/CAD traded around the 1.2920 level ahead of the publication. The lines to watch are 1.3080, which is a 100% extension of the move from 1.2920 to 1.3000. The round level of 1.3000 proved to be not only a psychological barrier but also a cap on the pair on Tuesday.
1.2920 was a triple-top in late 2017 and remains a material line. The low of 1.2860 seen on Wednesday is next, followed by the swing high of 1.2760m a swing high from late February.
The USD/CAD had already entered the overbought territory, with the RSI crossing the 70 line. It is still flirting the level. Momentum remains strong to the upside.
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