BoC: No policy changes, USD/CAD to consolidate into end-2020 – TDS

The Bank of Canada (BoC) did not rock the boat at the December meeting, with no change to the overnight rate or QE, and no material change to forward guidance. There was not much on the CAD side either. Economists at TD Securities expect the USD/CAD pair to consolidate into year-end that would support another push through 1.30. 

Key quotes

“The BoC left the overnight rate unchanged at 0.25% in December. Additionally, the Bank left its forward guidance unchanged with respect to both the overnight rate and QE; the overnight rate will remain at the Effective Lower Bound (ELB) until slack is fully absorbed (expected in 2023), while QE is set to continue until the recovery is well underway, with the caveat that the Bank ‘will adjust (QE) as required to help bring inflation back to target on a sustainable basis’. The Bank did not announce any other changes to its QE program, which will continue at ‘a minimum of $4 B per week’ with its current skew towards longer duration securities.”

“The key takeaway from today is that the Bank sees things evolving largely as expected and appears comfortable with the amount of stimulus currently in place. There is still considerable uncertainty surrounding the outlook, but the Bank is unlikely to say too much ahead of the January policy decision & MPR.”

“The casual mention of CAD validates much of our view during this crisis: global themes and trends are driving nearly all assets. For FX and risk assets that’s just a big view on the USD. Markets are clearly focused on momentum and happy to ignore the bad news that might upset the apple cart. Still, three core themes have been driving FX performance: growth, value, and mean-reversion. Given the USD’s still quite stretched on short-term drivers and our global growth tools lack upward momentum, we’re still expecting some consolidation into year-end and early 2021.”