The Canadian dollar fell in the afternoon and in relation to the US dollar was the cheapest since the beginning of January this year. The USD/CAD spiked after the decision of the Bank of Canada, and additional pressure on the Canadian currency could have caused a fall in the price of oil, of which Canada is an exporter.
The Bank of Canada decided to leave the main interest rate unchanged at 1.75 percent, which was a decision in line with market expectations. This is still the highest level since the end of 2008, which was achieved in the cycle of interest rate increases that the Bank of Canada started from 0.5 percent in 2017.
After the decision, we can read that the monetary policy pursued by the central bank is suitable for the current conditions. The Bank of Canada sees an improvement in the economy after the slowdown that came in the second quarter, but the trade risks have increased. The bank added that the latest data is in line with forecasts and confirms the view that the slowdown at the end of 2018 and early 2019 was temporary. The data support the growth of both consumer spending and exports in the second quarter. The bank sees a revival in the oil sector, as oil prices remain above the recent lows, and production has increased.
With regard to the trade war, the Bank of Canada pointed out that the risks associated with it increased, and the trade restrictions introduced by China have a direct impact on exports from Canada. The recent escalation of trade conflicts increases uncertainty about economic prospects. It was also added that further decisions will remain dependent on data, with particular attention being paid to changes in household spending, the oil market and global trade environment.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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