The Canadian dollar jumped this morning as the Bank of Canada left rates steady at a nearly 3-year low of 3.00 percent, as expected. However, the more market-moving factor involved with the rate decision was the commentary contained within the Governing Council's policy statement as they called rates "appropriately accomodative," suggesting that they had no intention of even considering reducing rates.
The markets seem to believe otherwise, though, as Credit Suisse overnight index swaps are pricing in approximately 50bps worth of cuts within the next 12 months. Taking a closer look at the Bank's policy statement, it's easy to see why. The Governing Council was more pessimistic about the impact of the US economic slowdown and tight credit creditions on US growth in 2009. Furthermore, the Bank said that commodity prices have been weaker than previously assumed and that domestic economic activity had been slightly lower than expected.
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Canadian dollar technical and fundamental outlook for more.
Forex positioning in the Canadian dollar showed that traders actually grew more net-long the USDCAD following the Bank of Canada’s interest rate decision. Yet we actually see that orders to buy the USDCAD actually dipped 3.9 percent from yesterday, and the true change came from a 7.4 percent pullback in short orders—likely a result of short-term profit taking. Overall, our SSI indicator shows that traders are still fairly bullish the USDCAD, but it serves to note that that open interest is 23.5 percent below its monthly average. On balance it seems that the Bank of Canada rate decision has sparked a wave of short-term profit taking on short positions, but the SSI is a contrarian indicator and signals that further USDCAD losses are likely.
Written by Terri Belkas, Currency Strategist and David Rodriguez, Quantitative Strategist of DailyFX.com
Questions? E-mail: tbelkas@dailyfx.com, drodriguez@dailyfx.com
Canadian Dollar Jumps as Bank of Canada Leaves Rates at 'Appropriately Accomodative'
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