The Bank of Canada was in the spotlight today when it announced it would maintain its rate at 0.50 percent. The rest of the statement was dovish as Canada is left facing a “complex and lengthy” transition due to the lower price of commodities.
The BoC was one of the most proactive central banks this year cutting the benchmark rate twice in an effort to devalue the loonie and give exporters a chance to offset the losses in the energy sector. The Federal Reserve is widely expected to finally hike the U.S. interest rate when it meets on December 16 so there was little pressure on the Canadian central bank to modify its policy until after the U.S. changes take effect.
The monetary policy divergence will pressure the CAD as it heads lower versus the USD. The Canadian economy fell into a technical recession after the second quarter results, but managed to bounce back in the third. Softer economic data is threatening to record another contraction as commodity prices keep falling with lower demand and vast supply in the market.
The USD/CAD was trading above the 1.34 price line and dropped to 1.3350 after the BoC rate decision. It was a day of higher volatility for the currency pair that saw swings of 0.74 percent from low to high points.
The BoC says it expects the growth in the fourth quarter of 2015 to be moderate, but remains optimistic it will pick up in 2016. Given the slowdown in growth as weaker indicators were released a cut to the Canadian benchmark rate is not out of the question for next year as the pace of the Federal Reserve hikes won’t be as fast as first expected which could prompt the BoC to cut in an effort to stimulate the economy.
West Texas oil fell 3.4 percent after conflicting statements about the OPEC meeting on Friday. Iranian officials hinted that a deal by Saudi Arabia had been reached to cut production levels which boosted the price of crude. Saudi authorities then denied that those allegations were true and there was no deal in place. The price of oil fell as the most likely outcome of the Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna is for production quotas to remain untouched.
Russia has upped production levels in order to recapture lost market share and with Iranian production soon to be back online the price of energy is facing huge downward pressures. In the past Saudi Arabia has preferred to fight for market share than to seek to appease the other OPEC members pleas to cut production to stabilize oil prices.
CAD events to watch this week:
Friday, December 4
8:30 am CAD Employment Change
8:30 am CAD Trade Balance
8:30 am USD Non-Farm Employment Change
8:30 am USD Trade Balance
10:00 am OIL OPEC Press Conference