Summary:

• Bank of Canada keeps rates at 1.25% as expected
• CAD hit with some selling in the immediate reaction
• Press conference due at 4:15PM (BST)

As was widely expected the Bank of Canada have announced their decision to keep interest rates unchanged at 1.25% following their latest monetary policy meeting. With derivatives markets giving less than a 1/5 chance that their would be another hike this decision in itself is unlikely to have caused much by the way of a market impact so traders will likely look to the accompanying statement for any further clues. 

 The Canadian dollar has fallen since the release and currently trades lower against all of its peers. Source: xStation

Overall the statement appears to be erring on the dovish side, with one of the stand out lines being that the BOC “will be cautious with respect to future hikes”. Other points of interest in the statement are as follows:

• policy accommodation will still be needed to keep inflation at target
• Q1 GDP weaker than expected, rebound seen in Q2
• Q1 GDP forecast cut to 1.3% from 2.5%
• Monitoring economy’s sensitivity to higher rates

The immediate market reaction has seen the CAD drop with USDCAD surging by around 80 pips in the last half an hour. However, it should be remembered that the press conference is still to come (4:15PM BST) and therefore we may still get some contrary comments. 

From a longer term perspective the EURCAD may be an interesting pair to keep an eye on. The cross has bounced from the 50% fib of the larger move higher at 1.5486 and is now testing the 38.2% level at 1.5643 from below. These may be potential support and resistance levels to look out for going forward. 

 EURCAD has rallied since the rate decision but remains between the 38.2% and 50% Fib levels of a larger impulse higher. Source: xStation