The Bank of Canada kept interests rates unchanged at 0.50% and adjusted their quarterly monetary policy report. GDP forecasts for 2017 were raised from 2.0% to 2.1%, and 2018 was maintained at 2.1%. Measures of core inflation are below 2%, reflecting material excess capacity in the economy. As consumer energy prices rise and the impact of lower food prices dissipates, inflation is expected to move close to the 2% target in the months ahead and remain there throughout the projection horizon while excess capacity is being absorbed.
During the post rate decision press conference, Governor Poloz noted the Governing Council is particularly concerned about new US trade policy. He also noted that a rate cut remains an option if downside risks prevail, a change from the neutral stance held at last month's meeting.
Both the loonie and Mexican peso saw weakness after Wilbur Ross, the commerce secretary nominee, noted that the North American Free Trade Agreement with Canada and Mexico would be an early priority for his department.
Price action on the USD/CAD daily chart shows that the overall move from BOC decision and press conference was bearish for the loonie after noting concerns regarding trade negotiations with the US and the possibility of more easing. Price continues to respect the psychological 1.30 handle and appears to be finding tentative resistance from the 100-day SMA, which currently trades at the 1.3277. If the bullish stance resumes, key resistance will come from the 1.3350 to 1.3400 zone. If we see the bullish rebound stall, major support remains the noted 1.300 handle.