Bank of Canada's decision to hold interest rates supports the Canadian dollar

06 March 2024 53
Bank of Canada's decision to hold interest rates supports the Canadian dollar

The Bank of Canada is likely to hold interest rates steady for a fifth straight meeting. Reduced recession risks give policymakers more time to get a clearer read on inflation before they adjust borrowing costs.

In addition, strong U.S. economic growth reiterates the need to be patient about the timing of rate cuts.

 

Markets expect policymakers led by Governor Tiff Macklem to hold the benchmark overnight rate steady at 5%. In January, the bank explicitly dropped its hiking bias.

This year, there’s more opportunity to hear from Macklem himself — each of the eight rate decisions is followed by a news conference with the governor and Senior Deputy Governor Carolyn Rogers. They used to hold only four press conferences a year.

 

The economy is growing slowly, expanding at a 1% annualized pace at the end of last year. Recession calls among major lenders have faded, and a so-called soft landing is increasingly seen as the most likely scenario.

 

And while the country’s labor market is weaker than a year ago, the unemployment rate reversed course and fell to 5.7% in January. Importantly, economic growth in the US, the country’s largest trading partner, is also proving stronger, pushing back bets on when the Federal Reserve will start cutting.

 

The annualized change in the consumer price index decelerated to 2.9% in January, just the second time in 34 months that price pressures have fallen below the 3% cap of the bank’s target band. Still, core inflation has proved sticky, and officials have repeatedly said they won’t turn to a discussion of cuts until they’re satisfied they’re seeing sustained evidence of disinflation.

 

Economists surveyed by Bloomberg believe that the first rate cut will not take place until June, and the subsequent series of easing will result in the discount rate reaching 3% only by the end of 2025, which currently provides strong support for the Canadian currency and AUDCAD.

 

The final recommendation is to sell AUDCAD. The profit could be fixed at 0.879.

The Stop loss — at 0.8900.

This content is for informational purposes only and is not intended to be investing advice.

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