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BOC Surprises with rate increase

Market Analysis

USDCAD, Daily                    

Bank of Canada raised rates 25 bps to 1.00%, upending expectations for a steady 0.75% setting. The announcement notes that recent data have been stronger than expected, which has in turn supported the Bank’s view that growth is becoming more broad based and self sustaining. Consumer spending is remains robust, more widespread strength in business investment and exports is evident. They still see a moderation in growth in the second half but the level of GDP is now higher then they had expected. As for global growth, the expansion is “becoming more synchronous.” They did not that “significant geopolitical risks and uncertainties around international trade and fiscal policies remain.” A for inflation, while it remains below target, “it has evolved largely as expected in July.” Future monetary policy decision are not predetermined, they say, and will be guided by “incoming economic data and financial market developments as they inform the outlook for inflation.” So, more strong data, more rate increases.

 

USDCAD plummeted to 1.2140 lows from 1.2405 following the somewhat surprising BoC rate hike, printing the lowest level since early June of 2015. The pairing since rebounded to 1.2236 highs on short covering action.  My short position ran back to T2 at 1.2315 for a gain of +95 pips. The Short EURCAD position from yesterday also ran to target at 1.4650, (+112 pips)  for a total net gain of 207 pips.

 

 

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Stuart Cowell

Senior Market Analyst

HotForex

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