Market Analysis

Canadian policymakers to turn more cautious following GDP decline

The Bank of Canada is widely tipped to keep the nations interest rate unchanged later today, as they express concerns about the loss of economic momentum during the fourth fiscal quarter. Data last week showed weaker than expected Q4 GDP data, which sparked a major sell-off in the Canadian Dollar currency.

Canada’s GDP expanded just 0.4 percent during the last quarter, missing the 1.2 percent growth rate expected and coming in significantly lower than the 2.0 percent growth seen during the third quarter of last year. Most analysts attributed the weaker than expected GDP numbers to the recent steep decline in oil prices and also a shrinking of Canada’s overall oil and gas sectors.

Central bank Governor Stephen Poloz is expected to hold interest rates around 1.75 percent later today, whilst communicate a more data dependent approach towards future rate hikes from the Bank of Canada. Most economists continue to expect at least one interest rate increase this year considering that Canada’s interest rate is still below the level that the central bank considers neutral.

The BOC has already stressed that they expected weaker than expected growth during the first quarter of 2019, as they fall in line with other global central bank’s who have recently turned more dovish. The central bank is also expected to acknowledge the better than expected jobs last month, which showed 66,800 net new jobs created in the first month of 2019 and also the better than expected rise in CPI inflation. Factoring in the soft GDP figures, the better than expected outcome for these two important key data points leave room for the central bank to become more cautious but not overly dovish at this stage.

Later this week the Canadian economy will release February’s employment numbers and also key housing data, as well as key export and import figures. The BOC will likely pay close attention to the jobs and housing data, particularly with the Canadian housing market showing signs of overheating.


USD/CAD Daily Mountain Chart | Source: ActivTrader

USD/CAD Daily Mountain Chart | Source: ActivTrader 


The Canadian Dollar has continued to weaken since last weeks disappointing GDP numbers with the USD/CAD pair advancing to a six-week trading high. The loonie has also been hit by a stronger US Dollar and a downturn in oil prices, the current bullish bias in the USD/CAD pair will accelerate if the 1.3385 level is breached, with upside targets found around the key 1.3455 and 1.3510 levels. Key technical support on any moves lower is now found at the 1.3345 level and the 1.3280 levels.


Written by Nathan Batchelor, External Analyst


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