BoC surprises with softer than expected rate hike
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The Bank of Canada surprised the market with a softer interest rate hike of 50bps vs the 75bps expected. The statement states that "the effects of recent policy rate increases by the Bank are becoming evident in interest-sensitive areas of the economy: housing activity has retreated sharply, and spending by households and businesses is softening."
However, it also says that "the Bank's preferred measures of core inflation are not yet showing meaningful evidence that underlying price pressures are easing."
One way to interpret this is that the BoC thinks that the full effects of current cuts are still traversing through the transmission mechanism. I.e. recent cuts, although lagging, will influence the core reading.
However, the statement says that "the Governing Council expects that the policy interest rate will need to rise further," which adds a touch of ambiguity to the softer increase.
The lower-than-expected hike is an interesting tact, given that the core readings are still to moderate. As such, the USDCAD has positively pushed up on the news with the EMAs and the stochastic crossing (black ellipses). Nevertheless, the central pivot acts as overhead resistance as the market digests the statement and awaits the press conference.
References:
https://www.bankofcanada.ca/2022/10/fad-press-release-2022-10-26/
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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