Bank of Canada and impact on CAD
USD/CAD spiked up to 1.0794 yesterday before easing down to 1.0730 today.
The Bank of Canada kept the overnight rate unchanged at 1.0%. The BOC Governor Stephen Poloz refrained from commenting on strength of the national currency as he said the economy won’t reach its full potential until the middle of 2016 – that’s about 3 months later than the bank projected in April. According to Poloz, the increase of annualized inflation above the central bank’s target of 2% has been caused by one-time gains in energy and import prices, not changes in economic fundamentals. The Bank of Canada also cut its Canada’s GDP growth forecast from 2.3% to 2.2% this year.
All in all, this position of the BOC is surely negative for Canadian dollar. Still, many analysts thought that Poloz will do more to talk down CAD. We didn’t see much of the sell-off of this currency as the market players await Canada’s inflation data due tomorrow – this release should provide some hints whether the surge in inflation is temporary as the BOC says or not. If not, the regulator will probably have to adopt a more hawkish stance in order to stop prices from soaring.
Chart. Daily USD/CAD