Fundamental Comment

Does BOC meeting hold anything new for the Loonie

BOC meeting impact on Loonie

Financial markets will be waiting for the Bank of Canada policy meeting, despite strong expectations of interest rate stabilization, as the focus will be on the central bank's policy and whether any change in monetary policy may carry anything new for the Canadian dollar (Loonie).   

The BOC will probably keep interest rates unchanged at 1.75 percent, as the recent slowdown in the Canadian economy has increased market expectations that the central bank will maintain a cautious policy to support economic growth.

Accordingly, the Canadian dollar is showing retreat in the recent period, abandoning its link with crude oil prices that hit new 2019 record high this week.

BOC may shift investors’ attention towards the Loonie

The BOC has maintained a pro-growth monetary policy that will probably keep negative pressure on the Canadian dollar, but expectations for inflation indicate that it is on the way to recovery in the coming period, which may ease the bank's caution and thereby bolster the Canadian dollar.

Canada's consumer price index rose 2.1 percent while expectations were in favor of 1.8 percent rise. Retail sales, a measure of household spending, rose 0.8 percent from 0.4 percent.

Both indicators suggest an upside move in inflation, which the central bank will take into account during its next monetary policy.

Negative challenges for the Canadian economy

Recent months have seen only a weak recovery for the Canadian economy that has seen a slowdown in wage growth coupled with a drop in home prices.

Also, the BOC home business survey fell to negative territories during the first quarter, reflecting the pessimism among the business sector.

This has caused the central bank's rate hike expectations to fall sharply this year, which also pushed the Canadian dollar to its lowest level in seven weeks against its US counterpart.

The Loonie loses its link to crude oil prices

Over the past four months, crude oil prices have risen sharply due to concerns about global supply and production cuts by OPEC and its allies, which pushed US crude futures prices to their highest level since October last year at $66.58 a barrel on Tuesday.

The Canadian dollar is usually positively correlated with oil prices, but this relationship has weakened in recent months. The Canadian dollar has continued its decline against the green currency since February, with the USDCAD pair recording a seven-week high at 1.3461.

Conclusion

The BOC meeting today may not witness anything new in terms of interest rates, but the central bank’s statement and the press conference would grab attention to the latest developments in monetary policy.

The central bank will remain very cautious about growth due to the recent slowdown in the Canadian economy, but it will not be as cautious as expected in the markets right now, especially after the recovery in inflation rates.

The Loonie may find some recovery from the BOC governor's remarks if he points to the latest soar in inflation, but the rise of the Canadian dollar may not change the general trend due to the fact that the BOC will keep interest rates unchanged for a long period.

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