The market in general and economists in particular had expected the Bank of Canada to hold off until October to take action. Instead, Governor Stephen Poloz opted to raise the BoC’s key rate from 0.75% to 1.00% at yesterday’s meeting, even though there was no press conference or Monetary Policy Report scheduled. The statement that accompanied the decision contained several important points:
- The strength of the Canadian dollar reflects our robust economy
- Recent economic indicators have been better than expected
- Future monetary policy decisions will be governed by economic indicators
The reaction from the CAD was strong, +200 points in the space of a few minutes and, for the moment, minimal fallback. All eyes are now turned to the psychological support level at 1.2000, which could be reached if Canadian job data on Friday (8:30 a.m.) prove strong. In contrast, any indicators that would call into question the current pace of growth might result in a rally in the USD/CAD pair.
In the United States, Republicans and Democrats have struck a deal on the debt ceiling, which appears to be breathing a bit of new life into the greenback.
Olivier Cosialls
Range of the day: 1.2150 – 1.2350