BoC surprises with full percentage point hike
The BoC surprised with a 100bps hike. The market was expecting 75bps, which was already a pivot from an earlier expectation of 50bps. In this context, it certainly is an aggressive move by the BoC. The central bank is looking to front load with its hikes, given its concern over broad inflationary pressure in the Canadian economy. It said in its statement that "more than half of the components that make up the CPI are now rising by more than 5%".The move puts its policy rate at 2.5%.
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The surprise hike has inverted the Candian 2-10s yield curve, which suggests a similar approach to policy as the Fed. In addition, Canada's unemployment rate is at 4.9%, the lowest in decades. Given the inversion, the BoC is counting on this to provide a cushion for the front loading.
After the hike, the USDCAD moved into its neutral area between the blue Bollinger bands, as the CAD strengthened. The BoC and the Fed are both aggressive in policy direction. Therefore, we are looking for a more conclusive position to determine directional bias, i.e. will USDCAD settle in the bullish or bearish area?
Russell Shor
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.
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