Search ForexCrunch

As expected the Bank of Canada made no change in policy. The accompanying statement did not contain big news, but Poloz and company do mention the Canadian dollar and say the lower C$ “should provide additional support”. The Bank of Canada was not expected to make any policy changes. The interest rate stands at 1% since September 2010.

Earlier in the day, USD/CAD dropped and retreated from the 1.10 line, trading at 1.0980 just before the BOC released its statement. USD/CAD had a mixed reaction to the news, but the loonie eventually dropped and USD/CAD is breaking above 1.10 — more coming —

Here is a part of the statement related to the Canadian dollar:

The lower Canadian dollar should provide additional support. We continue to believe that rising global demand for Canadian goods and services, combined with the assumed high level of oil prices, will stimulate business investment in Canada and shift the economy to a more sustainable growth track

In the initial reaction, USD/CAD went as low as 1.0958 and then rose to reach a high of 1.1015. The move above 1.10 still awaits confirmation.

Regarding inflation, the BOC still remains somewhat dovish, and this can explain the hesitant reaction. Here is a part from the last paragraph:

With underlying inflation expected to remain below target for some time, the downside risks to inflation remain important

Update: Adam Button at Forex Live analyzes the BOC’s Monetary Policy Report and sees hawkish signs. This is an accompanying quarterly report.

BOC governor Stephen Poloz made dovish comments in recent public appearances. The central bank went from a hawkish stance to a dovish one as the level of inflation dropped to low levels.

On the other hand, the weakness of the Canadian dollar did change the picture regarding inflation, which began lifting its head. The last employment report for Canada was positive.

1.10 is a clear resistance line, followed by 1.1080. Support awaits at 1.0940 followed by 1.0850. For more lines, events and analysis, see the Canadian dollar forecast.