BOC Hikes & Signals More To Come
The September Bank of Canada meeting, held yesterday, saw the BOC delivering a firmly hawkish outcome. The bank hiked rates by .75%, the top end of the range of expectations, and signalled more tightening as likely necessary. There had been a great deal of speculation ahead of the event that the bank might use this meeting either to announce a temporary end to tightening, or at least to lay the groundwork for such a pause. However, the bank was firm in its assessment that the current inflationary outlook requires further rate increases though did leave some wiggle room around the scale of further hikes.
Looking ahead, the BOC noted that “As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target.” With rates at 3.25%, Canada now has the highest interest rates in the G10. On the back of the meeting, the market is now forecasting BOC rates to peak around 4% early next year unless inflation is seen persisting at higher levels for longer.
Market reaction have ben relatively muted with CAD surrendering any initial gains. The market now deems the bulk of the bank’s tightening operations to be behind it, pegging the likelihood of much smaller rate hikes moving forward.
Technical Views
USDCAD
USDCAD is currently stalling at the latest test of the 1.3145 level, ahead of the bull channel top. With bearish divergence on momentum studies, risks of a double top are growing while price holds here. If we do start to correct lower from this area, 1.2962 is the first support zone to note, ahead of deeper support at 1.2814.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.