The Canadian Dollar fell considerately against of host of currencies this week as the Bank Of Canada announced that interest rates would remain at 1.00% this month.
Was a Canadian interest rate rise expected?
Although investors were left waiting from recent Canadian Retail sales and CPI Inflation data, many still believed that there was a good chance of further rises. The Canadian economy performed well in the last four quarters allowing the Bank of Canada to implement Interest rate hikes in July.
The Bank of Canada sited its decision on the strength of CAD rates which is currently impeding Canadian inflation, which remains lower than the banks ideal of 2%
What can investors take from the post rate decision press conference?
Although investors may have interpreted the lack of rate rise as a disappointing outcome, Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins Spoke on Canada’s growth stating they:
Expect the economy to continue to grow at an above-potential pace.
The governor also stated that the Bank of Canada anticipated the economy would require less stimulus in the future.
Talking about the economy Stephen Poloz stated that Canada’s output was close to full capacity with investment and new businesses being created all the time. Poloz did highlight some key points which remain work in progress, amongst these were the Labour market and Canadian wage growth.
When speaking of the Canadian Labour market Poloz said that the Bank of Canada believed there was still more potential for increased capacity. In particular, moving some of the workforce from Part-time position to full-time employment. He plans to do this through continued investment in existing companies as well as start-ups.
The Governor also highlighted wage growth as another work in progress, whilst the employment has strengthened Canadian wage growth has lagged behind; The Bank of Canada believe this is partly caused by the excess labour available.
CAD rates tumbled follow the interest rate decision
After Canada’s interest rate announcement CAD rates plummeted against a handful of currencies. This is exasperated by investors pulling money out of Canada’s Stock Exchanges, the S&P and TSX, with their index falling roughly 50 points. This saw the USD/CAD jump from 1.2666 to 1.2788 in a small time window.
The EUR/CAD enjoyed a very similar spike in value with the pair moving from 1.4943 to 1.5103 following the Bank of Canada’s announcement of an unchanged Interest rate. The EUR/CAD has since depreciated following Draghi’s ECB press conference and Catalonia’s declaration of independence, Euro to CAD rates closed on Friday at around 1.4867.