The Canadian bonds traded modestly firmer on Thursday after Bank of Canada (BoC) left policy rate unchanged at 0.5 percent. Moreover, future course in bond prices are likely to be ruled by the movements in the crude oil market, which jumped more than 1 percent and crossed $50 mark for first time in seven months. The yield on the benchmark 10-year Treasury note, which moves inversely to its price fell 2bps 1.364 percent and the yield on the short-term 2-year Treasury bond hovered at 0.640 percent by 1255 GMT.
The Canadian central bank yesterday maintained its key interest rate at 0.5%, on par with expectations. The Bank of Canada noted that the outline of the nation’s outlook has been altered amidst the Northern Alberta wildfires, however; it stated that risks to the outlook of inflation continue to be “roughly balanced”.
Even though the Canadian first quarter growth seems to be consistent with the Monetary Policy Report of April, the BoC anticipates that the Northern Alberta wildfires will subtract around 1.25 percentage points from the economic growth in the second quarter, noted TD Economics in a research report.
The Monetary Policy Report had anticipated 1% growth on a quarterly annualized basis. It is a possibility that the central bank is tracking a growth contraction for the second quarter, said TD Economics. The BoC projects the economic growth to recover in the third quarter as reconstruction starts and oil production resumes.
Moreover, the global economy is growing widely as anticipated in the April MPR. The Bank of Canada projects the US economy to return to strong growth after expanding softly at the beginning of the year. According to the central bank, Canada’s structural adjustment to the oil price shock is uneven. It emphasized that the softness recorded recently in Statistics Canada’s investment intentions survey as upsetting.
The crude oil prices jumped after the U.S. government reported a larger-than-expected drop in crude inventories. According to the US DOE, crude inventories decreased 4.2 million barrels, as compared to a build of +1.3 million barrels seen prior for the week ending 20 May. This came alongside an increase seen in gasoline inventories of +2.0 million barrels, from a draw of -2.5 million barrels seen prior and a decrease in distillate inventories of -1.3 million barrels, against a draw of -3.2 million barrels. The International benchmark Brent futures rose 1.30 pct to $50.38 and West Texas Intermediate (WTI) jumped 1.13 pct to $50.12 by 1240 GMT.
The material has been provided by InstaForex Company – www.instaforex.com