This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
By mid-afternoon in New York, the USD/CAD was down 0.42% at 1.0490, after the Bank of Canada decided to leave its overnight rate at 1%, where it has been since September 2010. Although the decision was widely expected, the central bank noted in its statement that the housing market has been stronger than anticipate lately.
The statement kept the same language as used previously by Governor Stephen Poloz, saying ‘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% inflation target.’
In other words, the Bank of Canada still intends to tighten eventually, but this is unlikely to be in the near future. This hawkish bias, as slight as it is, is probably acting to support the currency.
The Loonie also received a boost from the general ‘risk-on’ sentiment that has prevailed today. Data overnight showed that GDP growth has picked up pace in both Australia and China and that has fuelled demand for growth currencies, such as the Australian dollar and the Canadian dollar.