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BoC strikes cautious tone, dampening loonie upside - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 14, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Lee Hardman, Currency Analyst at MUFG, notes that the Canadian dollar has weakened modestly following yesterday’s more dovish than expected BoC policy meeting and release of their latest Monetary Policy Report.

    Key Quotes

    “BoC Governor Poloz struck a more cautious tone than expected stating that it was “best to look through short-term economic strength” downplaying stronger economic growth at the start of this year. He warned that the global economy may disappoint further.

    The more downbeat than expected tone from the BoC was reflected by the downgrade to their estimates for potential growth in Canada in the coming years which provided a counterbalance to the upward revision to their forecast for economic growth this year. As a result the BoC’s projection for when spare capacity will be used up was shifted somewhat earlier to the second half of 2017.

    Governor Poloz implied that the BoC would have been closer to lowering rates in light of recent negative developments if it had not been for the stimulative impact provided by the government’s recent budget. Recent negative developments included weaker global growth, a further downgrade to investment intentions in Canada’s energy sector and the weaker outlook for non-resource exports which the BoC noted that the recent strengthening of the Canadian dollar contributes to. It provides a signal that the BoC does not want to encourage further loonie strength. With the BoC still unlikely to begin raising rates in the year ahead there is only limited room for Canadian short rates to continuing adjusting higher in the near-term. It supports our view that further upside for the loonie will become more challenging.”
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