The Canadian dollar continued to
decline in overnight trading after the Bank of Canada released the interest
rates for the month of March. The bank left interest rates unchanged at 1.75%
and pointed that rates could remain unchanged for a longer time. The bank
blamed the situation on the ongoing challenges in the global and Canadian
economy.
The bank also said that the
slowdown in the global economy has been more pronounced and widespread than
earlier forecasted in the Monetary Policy Report (MPR). The growth has been
mostly hurt by the ongoing trade war and the uncertainties around Brexit. In
the MPR, the bank had forecasted temporary slowdown, mostly because of the decline
of oil prices. This low price would have led to weak investments in the oil
sector and low household spending in the oil-producing provinces. On inflation,
the bank said
that:
Core inflation measures remain close to 2%. CPI inflation eased to 1.4%
in January, largely because of the low gasoline prices. The bank expects CPI
inflation to be slightly below the 2% target through most of 2019, reflecting
the impact of temporary factors, including the drag from lower energy prices
and a wider output gap.
In view of all these, the council
of the BOC said that interest rates should be below the neutral range, which is
usually 2.5% – 3.5%.
The decision by the bank to leave
rates unchanged came on the same day that the Organization for Economic Cooperation
and Development (OECD) revised its global economic forecast. The organization
now expects the global economy to grow by 3.3%, which is lower than the
previous forecast of 3.5%.
After the interest rates
decision, the USD/CAD pair rose sharply as traders viewed the statement as
being dovish. The pair was already in an upward trajectory even before the
statement. As shown below, the pair reached a high of 1.3450, which is the
highest level since the first week of January. This level is slightly above the
35-day and 21-day EMAs. It is also along the upper line of the Bollinger Bands
while the RSI remains below the 70 overbought level. The pair could continue
moving upwards, although this could change depending on the official US jobs
numbers expected tomorrow.
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