Expected USD/CAD Range: 1.110 – 1.118
Update: On a scale of 1 to 10 where 1 was status quo and 10 was a very dovish statement, yesterday’s Bank of Canada announcement was a 7. We were expecting a 5 and clearly the market was surprised as well given the Canadian dollar’s violent negative reaction. Adding to the surprise was the Bank’s reference to the value of the Canadian dollar as still being an impediment to competitiveness in the quarterly Monetary Policy Review. The loonie traded down nearly a penny immediately and is now trading at 1.110. Overnight it traded as weak as 1.115. Strong retail sales in Canada out this morning caused a retracing of some of the loonie’s losses and there is significant attention focused on tomorrow’s inflation data, especially given the renewed focus brought to disinflation fears by yesterday’s Bank of Canada announcement.
The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …