The Bank of Canada (BoC) held rates unchanged at 0.50 percent on Wednesday. The central bank did downgrade its growth expectations for the Canadian economy in 2016 down to 1.3 percent from a previous 1.7 percent. The BoC was less dovish than expected and while it was acknowledged that the drop in commodities prices and its impact is still ongoing there is optimism that exports will pick up in the second half of the year.
Governor Poloz during his press conference did mention that the low currency will help exporters but also warned that this recovery will not happen overnight. He admitted that his forecasts are conservative in its export outlook but the fact remains that Canada has not been able to reduce its dependancy on natural resources as fast as the BoC would have wanted.
The BoC’s view on Brexit was discussed during the press conference with officials saying the Brexit fallout will cost global growth 0.2 percent, and a 0.1 percent impact for Canada even though it will proceed in an orderly fashion. The central bank is still expected to wait in the sidelines until after the effects of the fiscal stimulus package are felt in the second half of the year.The USD/CAD lost 0.364 percent in the last 24 hours. The pair is trading at 1.2988 after the Bank of Canada (BoC) left interest rates unchanged this morning. The loonie got a boost from the central bank holding rates despite the drop in oil prices that came after the release of U.S. crude inventories.
The Monetary Policy Report published quarterly by the central bank also gave an assessment of the detrimental impact of the Alberta wildfires. The disaster eroded 1.1 percent of the Q2 growth taking with it the forecasted growth and turning it into a contraction.
The Canadian currency was boosted by the less dovish outlook as Governor Poloz continued his optimism about a second half rebound.
The West Texas lost 3.775 percent in the last 24 hours. The pair is trading at $45.29 after the U.S. crude inventories fell by less than was expected. Crude stocks in Cushing, Oklahoma fell by 2.5 million barrels last week. The International Energy Agency (IEA) said today that the global supply glut is a threat to the recovery of the energy market.
CAD trades will be focused on housing data due on Thursday, July 14 and manufacturing sales due on Friday. Macro events remaining this week is the first Bank of England (BoE) rate statement since the historic Brexit vote on Thursday and the release of U.S. retail sales and inflation data on Friday.
CAD events to watch this week:
Thursday, July 14
8:30am CAD NHPI m/m
Friday, July 15
8:30am CAD Manufacturing Sales m/m
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar
About Alfonso Esparza
Senior Currency Strategist, OANDA, Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto. Follow on Twitterand on his Google+ profile.