The Canadian dollar rallied today after Canada’s central bank preferred to avoid cutting interest rates. Wednesday’s domestic macroeconomic data was negative for the loonie, but the currency ignored it for the most part.
The Bank of Canada left its main interest rate at 1.75% at today’s meeting, in line with the market consensus. The accompanying statement said that Canada’s economic “growth in the second quarter was strong and exceeded the Bankâs July expectation” and that “Canadaâs economy is operating close to potential and inflation is on target”. But the statement also mentioned the negative impact of the Sino-US trade war:
As the US-China trade conflict has escalated, world trade has contracted and business investment has weakened.
It added further:
However, escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies. In this context, the current degree of monetary policy stimulus remains appropriate.
Overall though, the statement did not seem as dovish as was expected, which could explain the rally of the Canadian dollar. But many analysts agree that a rate cut in October remains in the cards as the BoC was showing previously clear signs that it plans to join other central banks in easing monetary policy.
As for macroeconomic data, Statistics Canada reported that the trade balance deficit widened from just a marginal shortfall of approximately C$0.1 billion in June to a more substantial gap of C$1.1 billion in July. That was a total surprise to traders as the consensus forecast had promised a small surplus of C$0.2 billion.
USD/CAD sank from 1.3335 to 1.3242 as of 15:53 GMT today. EUR/CAD was down from 1.4630 to 1.4600, retreating from the daily maximum of 1.4692. CAD/JPY surged from 79.41 to 80.26.
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