Bank of Canada maintains the overnight rate target at 0.25 percent and announced its expectation to hold there through the second quarter of 2010.
They reported “global economic recovery is under way”, though it “continues to depend on exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.”
“Economic growth in Canada resumed in the third quarter of 2009 and is expected to have picked up further in the fourth quarter. Total CPI inflation turned positive in the fourth quarter and the core rate of inflation has been slightly higher than expected in recent months. Nevertheless, considerable excess supply remains…”
“Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. Consistent with this conditional commitment, the Bank will continue to conduct term Purchase and Resale Agreements…”
Source: Bank of Canada
The Canadian dollar lost strength on the news, with USDCAD spiking up to 1.0347. An unchanged forecast from October’s statement and signaling that the low rate will remain at least through June 2010 did not attract many buyers to the CAD. USDCAD also has strong support near 1.200-1.2050, so technical traders are waiting for a better opportunity.
Despite the relatively weak news for the CAD, continue to look for opportunities to sell USDCAD. The BoC will hold rates, but the Federal Reserve is doing the same with a lower rate and greater levels of stimulus. Look for a top in this current bounce or rally. There is strong resistance at 1.4000 where we will look to sell a bounce. If USDCAD manages to break beyond that, look to 1.0540 and 1.0740 as resistance. In the short to medium term, look to sell down to 1.2000-1.2050. Longer term, expect that 1.2000 support to break and USDCAD to go to parity once again.
