BOC To Keep Rates on Hold Until 2023
BOC Unchanged
The Canadian Dollar has been a little softer over the last 24 hours following the latest monetary policy meeting from the Bank of Canada. The BOC held its headline policy rate unchanged, as expected, at record lows of 0.25%.
The broad strokes of the meeting were fairly encouraging. The BOC acknowledged that the economic recovery is unfolding in line with its own expectations and though the ongoing restrictions and disruption to industry are still a headwind, the recent strength in the price of oil is helping offset some of this weakness.
Vaccine Optimism
The bank was also optimistic with regard to the recent developments with regards to COVID vaccines. The BOC said: "News on the development of effective vaccines is providing reassurance that the pandemic will end and more normal activities will resume, although the pace and breadth of the global rollout of vaccinations remain uncertain."
Rates On Hold Until 2023
While the tone of the meeting was certainly geared towards focusing on the positives and focusing on the ongoing recovery, the BOC did reaffirm its previous message that the Canadian economy will continue to need a great deal of monetary policy support and said that it plans to keep rates at current levels until at least 2023.
Canada has become the second country, behind the UK, to approve the Pfizer/BioNTech vaccine and has purchased 20 million doses, with the option to purchase 56 million more, currently making it the biggest global purchases of the drug.
Wait & See Mode
The general view now is that central banks are in a wait and see game with regard to the global rollout of the various vaccines in play. If vaccines are rolled out in an efficient and coordinated manner and prove to be effective, this should help individual economies recover at a quicker space than currently expected. In such a scenario, rate path expectations might see some readjustment which could lead to CAD strengthening as trader anticipate a rate hike coming in ahead of the current 2023 guidelines. Alternatively, if the rollout runs into difficulties, then this will likely fuel weakness in the Canadian Dollar.
Technical Views
USDCAD
The downward trend in USDCAD since the highs posted in Q1 has seen the exchange rate moving from highs around 1.46 t current lows of around mid 1.27s. Price has recently found support at a test of the 1.2774 support level with the bear channel low offering support also. While below 1.2961,sentiment remains geared towards further downside towards the 1.2626 level next.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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