Canadian Dollar jumps sharply after BoC rates overnight rate by 25bps to 1.75% as widely expected. Most importantly, BoC tries to talk down the drop in headline CPI in September. And, it maintains tightening bias to move interest rate to a neutral stance.
In the statement, BoC noted CPI’s fall to 2.2% in September was “in large part because the summer spike in airfares was reversed”. Also, there were “other temporary factors pushing up inflation, such as past increases in gasoline prices and minimum wages, should fade in early 2019”. BoC expects inflation to remain close to 3% target through then of 2020. Additionally, it noted that “core measures of inflation all remain around 2 per cent, consistent with an economy that is operating at capacity.”
On monetary policy, BoC said “policy interest rate will need to rise to a neutral stance to achieve the inflation target.” Nonetheless, the “pace” will depend on how the economy adjusts to higher interest rates. BoC also pledged to pay close attention to global trade policy developments and the implications on inflation outlook.
USD/CAD’s sharp fall and break of 1.3027 minor support suggests that rebound from 1.2781 has completed at 1.3132 after rejection by near term channel resistance, on bearish divergence condition in 4 hour MACD. Further decline is expected back to 1.2916 support.
More importantly, the development now argues that whole decline from 1.3385 might still be in progress. And break of 1.2916 will bring another low below 1.2781.
