USD/CAD testing the bull’s commitments in lower 1.32 handle

• USD/CAD drops and stays low on the session following BoC.
• There was certainly a reluctance to provide any forward guidance in today’s event.

USD/CAD is down -0.77% following a less dovish than expected Bank of Canada’s on hold decision, travelling from a high of 1.3344 to a low of 1.3231. The Dollar was already fragile on yesterday’s manufacturing  ISM disappointment, but today’s decision fro the Bank of Canada, (BoC) to hold rates without a clear message that cutting rates is  on the agenda had given the Loonie a well-deserved bid

For weeks, markets had been pooling the CAD in the same camp as the Aussie and NZD in anticipation of a rate cut from the BoC, however, with an economy that is operating close to full capacity, noting the surprisingly strong Q2 GDP print, along with inflation on target and wage growth picking up, the BoC has been able to pull apart from the herd of central banks that have been easing in tandem of late.

The door  has been left ajar for rate cuts down the line

There was certainly a reluctance to provide any forward guidance in today’s event although the door  has been left ajar for rate cuts down the line – perhaps as soon as next month. The market is pricing in around a 55% probability of a 25bp rate cut in October, whereas the latest survey of analysts by Bloomberg continues to peg stable rates through this year and next.  

“Given Canada’s trade and commodity exposure and with little prospect of an imminent easing in trade and global growth concerns, we recently changed our view to a 30 October cut and that call remains valid,” analysts at ING Bank argued.

“The BoC’s has a tendency to move swiftly after signaling a shift in thinking. How the US-China dialogue plays out will be critical. For now though we would point out that the BoC was far less aggressive in hiking rates than the Federal Reserve over the past couple of years. As such, there is arguably less need for a significant corrective move lower in rates. Hence our view that this would be a one-off rate cut.”

USD/CAD levels