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The Bank of Canada (BoC) left the policy rate unchanged at 0.25% on Wednesday, October 28. The USD/CAD pair extended its rally after the announcement and touched its highest level in three weeks at 1.3334. Economists at Rabobank forecast USD/CAD at 1.34 in the fourth quarter. 

See – USD/CAD: Messy US election to inspire a push towards 1.35 – TDS

Key quotes

“It will come as a surprise to absolutely no-one that the BoC elected to leave the policy rate on hold at 0.25% on Wednesday. We expect to say this after every BoC meeting for the next couple of years as policy rates are anchored at the effective lower bound.”

“In a surprise move, bond purchases will gradually slow from a minimum of CAD5 B a week to 4 B a week. Purchases will be recalibrated to focus on the longer end of the curve to influence the rates ‘that are most important to households and businesses’.  Although the pace of purchases has declined, this is more than offset by the move down the curve and we would argue this represents an increase in stimulus given the front-end will remain anchored by the Bank’s forward guidance.”

“The Monetary Policy Report revealed an upward revision to GDP growth estimate for 2020 to -5.7% as had been expected but the bank maintained a cautious tone.”

“We hadn’t expected much direction from this meeting for USD/CAD given the dominance of risk appetite in driving the pair but the news of the reconfiguration of asset purchase policy combined with broad-based USD buying helped push the pair north of 1.33. We maintain our view that USD/CAD will trade up to 1.34 in Q4.”