BOC Meeting Outcomes and USD/CAD Insights
- The Bank of Canada implemented a 50bps reduction in interest rates to 3.25%, aligning with market expectations.
- In his latest address, BOC Governor Macklem displayed a subtly more hawkish stance, suggesting the possibility of pausing further rate cuts depending on future growth and inflation trends.
- Following the announcement, USD/CAD responded by retracing towards significant horizontal support levels around 1.4100.
BOC Interest Rate Adjustment
The Bank of Canada lowered interest rates by 50bps to 3.25%, marking the second consecutive cut of this magnitude from the central bank.
Monetary Policy Insights from the BOC
In its concluding monetary policy statement of the year, the BOC outlined the rationale behind the expected rate cut and addressed the inherent uncertainties regarding trade and immigration as the political landscape shifts with the upcoming US presidential administration:
- Uncertainty surrounding Donald Trump's proposed 25% tariffs on Canadian exports to the US has complicated the economic outlook.
- Projected weaker GDP growth due to lower immigration targets presents challenges for the economy in the coming year.
- The impact of inflation is anticipated to be subdued, attributed to lower immigration affecting both supply and demand dynamics.
Key Points from Governor Macklem's Press Briefing
During his recent briefing, BOC Governor Macklem conveyed a more assertive tone regarding monetary policy. Key highlights include:
- The central focus of our policy is to contain inflation close to target levels.
- Current monetary policy does not require a firmly restrictive stance.
- The growth projections appear less favorable than those articulated in October.
- We will monitor core inflation metrics closely to gauge trends in overall CPI inflation.
- The economic outlook remains uncertain, particularly with potential new tariffs on Canadian exports looming.
- We aim to facilitate growth that absorbs excess capacity in the economy while maintaining inflation near 2%.
- Future decisions on the policy rate will be approached incrementally.
- With rates substantially reduced, we foresee a more gradual stance towards monetary policy adjustments if economic conditions unfold as anticipated.
Technical Analysis of USD/CAD
Source: TradingView, StoneX
Focusing on the Canadian dollar, recent developments led to a strengthening of USD/CAD amid a more balanced perspective on future interest rates. From a technical standpoint, the pair remains in a multi-month uptrend, provided prices stay above crucial Fibonacci levels and a rising trend line in the 1.4100 range. Traders should monitor this area for a possible rebound if rates continue to decline. A definitive breach below 1.4100, however, would shift the immediate outlook and potentially open pathways toward 1.3950.
