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Posted by Fan Yang

I am a Chartered Market Technician, but my first encounter with the markets started back in the internet bubble when I thought I was picking great stocks because of great fundamental analysis. While fundamental analysis is an essential part of assessing the market, even the most professional research could be irrelevant without proper experience in the markets. When the bubble burst, I realized that the market is always changing so we must always keep up, but the changes are also anchored to the past so we must understand its history as well.

BoC Leaves Overnight Rate at 1.00% (Full Text and CAD Reaction)

by Fan Yang on September 4, 2013

in Forex

Ottawa –

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economy continues to expand broadly as expected, but its dynamic has moderated. In the United States, the process of normalization of long-term interest rates has begun in the context of stronger private domestic demand. Recent data, however, point to slightly less momentum overall than anticipated. In Europe, there are early signs of a recovery, and Japan’s situation remains promising. In a number of emerging market economies, financial volatility has increased, adding uncertainty to growth prospects, although China continues to grow at a solid pace. Commodity prices have been relatively stable, with geopolitical stresses putting some upward pressure on global oil prices.

Uncertain global economic conditions appear to be delaying the anticipated rotation of demand in Canada towards exports and investment. While the housing sector has been slightly stronger than anticipated, household credit growth has continued to slow and mortgage interest rates are higher, pointing to a continued constructive evolution of household imbalances. Looking through the choppiness of the recent data, the level of Canada’s GDP is largely consistent with the Bank’s July forecast. The output gap is expected to begin to narrow in 2014.

Inflation in Canada remains subdued. With inflation expectations well-anchored, both core and total CPI inflation are expected to return slowly to 2 per cent as the output gap closes.

Against this backdrop, the Bank has decided to maintain the target for the overnight rate at 1 per cent. As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate. Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target.

Source: BoC press releases

The USD/CAD is whipping around the 1.05 level immediately after the release. A break below 1.0470 could be significant for a bearish outlook. Otherwise, there is a bullish bias in the medium term, but is trading sideways in the 1H chart since last week.


(Click to enlarge)

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