Article by ForexTime
The USD/CAD edged lower following the change by the Bank of Canada to a neutral bias. The Bank of Canada left rates at 1.00% and dropped forward guidance, which was expected by market participants. The removal of the neutral bias was not a change in stance. The lack of the bias was accompanied by a balanced growth outlook and little change to the longer term inflation trajectory, which is in contrast with the dovish focus on downside risks to global growth seen in July and September. Hence, the announcement leave intact the outlook for an extended period of steady policy followed by modest rate hikes.
While the abandonment of the neutral bias captured the attention surrounding the announcement as traders focused on the Bank of Canada’s shift to a more balanced growth outlook. The advancements seen in domestic developments were offset by global growth, which paints a less rosy picture. The outlook for stronger momentum in the global economy in 2015 and 2016 remains intact, but the profile is weaker than in July. Despite weakness elsewhere, the U.S. economy is gaining traction, especially in sectors that are beneficial to Canada’s export prospects.
The U.S. dollar has firmed, and Canada’s exports have begun to respond to these positive developments, but business investment remains weak. The housing market and consumer spending are showing renewed vigor amid low interest rates, but lower terms of trade will constrain incomes.
Over the course of time, rates should begin to climb based on the performance of economic data. The Bank dropped its explicit neutral bias in this announcement. The change made good on Governor Poloz’s intention to abandon forward guidance, which was revealed in an interview on October 10, 2014. The Bank’s announcement was less dovish than anticipated, as the balanced and somewhat constructive growth outlook contrasted with recent dovish BoC-speak and the emphasis on downside risks from abroad.
The USD/CAD slid through the 10-day moving average, but remains in an uptrend. Momentum has turned negative with the MACD (moving average convergence divergence) index generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.
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