Bank of Canada set to cut interest rate for second consecutive meeting – Crypto News – Crypto News
Connect with us
Bank of Canada set to cut interest rate for second consecutive meeting Bank of Canada set to cut interest rate for second consecutive meeting

others

Bank of Canada set to cut interest rate for second consecutive meeting – Crypto News

Published

5 hours ago

on

The Bank of Canada (BoC) is widely expected to trim its benchmark interest rate by another quarter point on Wednesday, bringing it down to 2.25%. That would follow a similar move in September as the central bank continues its gradual easing cycle.

The case for more cuts has been building. Growth has stalled, the labour market has lost momentum, and inflation remains stubbornly above target. Canada’s economy shrank by 1.6% in the second quarter, worse than forecast, while the job market surprised with a 60K gain in September, keeping the Unemployment Rate steady at 7.1%.

Inflation remains a sticking point. Headline CPI rose 2.4% YoY last month, surpassing expectations, and core CPI climbed to 2.8%. The Bank’s preferred measures—Common, Trimmed, and Median CPI—also nudged higher to 2.7%, 3.1%, and 3.2%, respectively.

Back in September, the BoC cut rates by 25 basis points to 2.50%, a move that markets had fully priced in. After that meeting, Governor Tiff Macklem struck a cautious tone, saying the inflation picture hadn’t changed much in the last few months. He pointed to mixed data and emphasised a meeting-by-meeting approach. While inflationary pressures appear somewhat more contained, he stressed that the Bank stands ready to act if risks start to tilt higher.

Previewing the BoC’s interest rate decision, analysts at TD Securities noted, “We look for the Bank of Canada to cut rates by 25 bps to 2.25% in October, which we believe will mark the endpoint of its easing cycle. We do not believe stronger September data will be enough to keep the Bank on hold, but it should contribute to a more balanced tone in the statement as the Bank stresses a data-dependent approach going forward.”

When will the BoC release its monetary policy decision, and how could it affect USD/CAD?

The Bank of Canada will announce its policy decision on Wednesday at 13:45 GMT, followed by Governor Tiff Macklem’s press conference at 14:30 GMT.

Markets are already braced for a rate cut and pricing around 31 basis points of easing by the end of the year.

According to FXStreet’s Senior Analyst Pablo Piovano, the Canadian Dollar (CAD) has been consolidating near the upper end of its recent range, near the key 1.4000 mark. He notes that as long as USD/CAD holds above the 200-day simple moving average (SMA) around 1.3950, the pair could have more room to climb.

A renewed bullish tone, Piovano adds, could see USD/CAD retesting the October peak at 1.4080 (October 14), before potentially eyeing the April high at 1.4414 (April 1).

On the flip side, he points out that strong support sits around the 200-day SMA at 1.3952, seconded by the transitory 55-day and 100-day SMAs at 1.3887 and 1.3799, respectively. A break below that zone might open the door to the September floor at 1.3726 (September 17), with the July base at 1.3556 (July 3) coming into view if selling pressure deepens.

“Momentum indicators are still tilted to the upside,” Piovano adds. “The Relative Strength Index (RSI) is hovering near 57, while the Average Directional Index (ADX) stands near 37, suggesting the trend remains strong.”

Canadian Dollar FAQs

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

Related Topics:
Continue Reading

Trending