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Canada cuts interest rate to 0.50% – USD/CAD leaps to

The BOC surprised again by cutting the interest rate to 0.50%. While not everybody was surprised, this was certainly not the base case scenario. Did the  Iran deal play a role also in this decision?

USD/CAD leaps to a new 6 year high at 1.2923 and the rage continues.

The BOC  previously surprised in January with a cut to 0.75% but that was later described only as an “insurance policy”. This time it looks different. The output gap  is wider and there are downside risks to inflation.

In addition, the BOC cut the 2015  growth forecast to 1.1% and stated that the recent export weakness is  puzzling.They even see Canada as being in  recession right now. Here is what they say about the economy (emphasis mine):

The Bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection. The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities.   Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation.

The Bank of Canada was expected to leave the interest rate unchanged at 0.75%, but there was no 100% consensus before the event. The weak GDP from Canada also led many to expect that even if policy is left unchanged, Poloz and company could hint  on a rate cut in the not so distant future. On the other hand, employment was quite positive.

USD/CAD was on the rise before the publication, trading  just under 1.28. It had  already  reached a high of 1.2809 beforehand. The cycle high is 1.2834 and is a key line to watch.

The pair got its boost from a relatively upbeat speech from  Fed Chair Yellen, which helped the USD  across the board. In addition, Canadian manufacturing sales disappointed by rising only 0.1%, contrary to 0.3% expected.

Here is how it looks on the chart. The pair is now stabilizing on high ground, just under 1.29. The peak has been 1.2923. The previous 2015 high of 1.2834 turns into support but the technical break is clear,  given the  magnitude of the leap and the  magnitude of the decision.

USDCAD July 15 2015 new highs on BOC rate cut Canadian dollar smashed

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.