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The Bank of Canada (BoC) held off on any major changes at the September FAD with no change to the overnight rate (0.25%), QE (min C$5 B/week) and forward guidance. However, the rest of the statement was balanced to cautiously upbeat, noting the recovery has been stronger than anticipated. The lack of surprise in the BoC’s statement will keep the focus on the global story for USD/CAD. Global factors account for about 90% of this year’s move and point toward a retest of 1.34, per TD Securities.

Key quotes

“The BoC left the overnight rate at 0.25% in their September communique, and GoC purchases are set to continue at their current pace of at least C$5 B per week. The Bank’s forward guidance remained in place, with the Governing Council pledging to keep the overnight rate at 0.25% ‘until economic slack is absorbed so that the 2% inflation target is sustainably achieved’.”

“While the Bank downplayed the upside surprise on Q2 GDP, they did acknowledge that the bounce back in activity looked to be happening more quickly than anticipated. In the text of the communique, the Bank singled out household spending and housing demand as sources of strength.”

“The next USD/CAD move is likely higher in the very short run, reflecting the heightened two-way risks hitting markets this fall. Global factors explain about 90% of the USD/CAD actions this year and point to a retest of 1.34.”