Canadian Dollar weakens notably after BoC kept overnight rate unchanged at 1.75% as widely expected. The central bank assessed that economic developments were broadly in line with the April MPR, including growth and inflation.
Also, recent slowdown in late 2018 and 2019 was “temporary” even though “global trade risks have increased”. Thus, “degree of accommodation being provided by the current policy interest rate remains appropriate.”
BoC also sounded noncommittal to any future rate move. It just noted that “Governing Council will remain data dependent and especially attentive to developments in household spending, oil markets and the global trade environment”. That is, for the near term, there is still no chance of a rate hike.
USD/CAD spikes higher to 1.3546 after the release, through 1.3521 resistance. But there is no follow through buying yet. Further rise is in favor as long as 1.3429 support holds.
Full statement here:
Bank of Canada maintains overnight rate target at 1 ¾ per cent
The Bank of Canada today maintained its target for the overnight rate at 1 ¾ per cent. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1 ½ per cent.
Recent Canadian economic data are in line with the projections in the Bank’s April Monetary Policy Report (MPR), with accumulating evidence that the slowdown in late 2018 and early 2019 is being followed by a pickup starting in the second quarter. The oil sector is beginning to recover as production increases and prices remain above recent lows. Meanwhile, housing market indicators point to a more stable national market, albeit with continued weakness in some regions.
Continued strong job growth suggests that businesses see the weakness in the past two quarters as temporary. Recent data support a pickup in both consumer spending and exports in the second quarter, and it appears that overall growth in business investment has firmed. That said, inventories rose sharply in the first quarter, which may dampen production growth in coming months.
The global economy is also evolving largely as expected since April, although the recent escalation of trade conflicts is heightening uncertainty about economic prospects. In addition, trade restrictions introduced by China are having direct effects on Canadian exports. In contrast, the removal of steel and aluminum tariffs and increasing prospects for the ratification of CUSMA will have positive implications for Canadian exports and investment.
Inflation has evolved in line with the Bank’s April projection. The Bank expects CPI inflation to remain around the 2 per cent target in the coming months. Core inflation measures all remain close to 2 per cent.
Overall, recent data have reinforced Governing Council’s view that the slowdown in late 2018 and early 2019 was temporary, although global trade risks have increased. In this context, the degree of accommodation being provided by the current policy interest rate remains appropriate. In taking future policy decisions, Governing Council will remain data dependent and especially attentive to developments in household spending, oil markets and the global trade environment.
Trump uses tariffs to stop illegal migrants through Mexico
The highly anticipated “big league statement” of Trump regarding border security turned out to be announcement of the same old “one-trick”. In a rather shocked, he announced, by his tweets, to impose 5% tariff on all Mexican imports, “until such time as illegal migrants coming through Mexico, and into our Country, STOP.” And the tariff will “gradually increase until the Illegal Immigration problem is remedied”.
In the more detailed announcement by the White House, Trump said he was “invoking the authorities granted to me by the International Emergency Economic Powers Act.”. Starting June 10, 5% tariff will be imposed on all goods imported from Mexico. If the “crisis persist”, tariffs will be raised to 10% on July 1, then 15% on August 1, 20% on September 1, and 25% on October 1.
He further warned: “If Mexico fails to act, Tariffs will remain at the high level, and companies located in Mexico may start moving back to the United States to make their products and goods. Companies that relocate to the United States will not pay the Tariffs or be affected in any way.”
Full White House statement here.