The Canadian Dollar Weakens following BOC Monetary Policy Decision

The Canadian Dollar Weakens following BOC Monetary Policy Decision

06 Dec 2018

The USD/CAD is breaking out moving higher following Wednesday’s Bank of Canada monetary policy meeting. Despite declining US yields the dovish tone taken by the BOC has put downward pressure on the Canadian dollar.  The Federal Reserve is scheduled to meet on December 19, and it is widely expected to increase rates by 25 basis points. This Friday the Labor Department will release its unemployment report. A soft number could generate volatility ahead of the Fed meeting later this month.

The Bank of Canada Leaves Rates Unchanged

The Bank of Canada left rates unchanged and relayed a dovish tone to market participants. The central banks said it will remove accommodation, but its economic forecast was less confident then previous reports. The BOC downwardly revised economic growth pointing to trade as a negative development which could generate headwinds in 2019. The downward revisions to back data, pointing to weaker growth and recent negative developments make the central bank question whether the economy is really bumping against capacity constraints. 

The futures market continued to reduce the chances that the Bank of Canada will increase rates during its January monetary policy meeting. The implied futures now shows a 50% change of a hike down from 80% before the start of November.  

Oil Prices are Lower Following Trump Tweet

Oil prices are lower on Wednesday, ahead of the EIA inventory report as OPEC has failed to give the market a clear signal that it will cut production, and that Russia would be on board with a production cut as well, should one be implemented. President Trump tweet “hopefully OPEC will keep oil flowing” to keep pressure on the Saudi’s to cap higher oil prices. OPEC is meeting on December 6 and 7 to determine if they need to cut production to balance inventories. Saudi Arabia and Russia, appear to have agreed on a cut but the amount and size has yet to be agreed on by the cartel. Qatar’s withdrawal from OPEC after a long membership with the organization could generate issue as OPEC that it may find additional resistance.

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