Canada is an important North American country with a population of more than 37 million people and a GDP of more than $1.6 trillion. This makes it the tenth largest economy in the world. Part of the reason why the country’s economy is so large is that it has vast natural resources like crude oil. It also neighbors the United States, which is the biggest economy in the world.
Today, the Bank of Canada (BOC) will conclude its two-day meeting and announce its interest rates decision. Investors expect he bank to leave interest rates unchanged at the current level of 1.75%. This will be the seventh consecutive month’s the bank has not raised interest rates. It last raised the rates in the October meeting last year. In addition to leaving rates unchanged, investors expect the central bank to announce that it intends to leave rates at the current levels for quite some time.
Like other economies, the Canadian economy is going through challenges, which have been mostly caused by the ongoing trade war between the United States and China. The two countries matter because they are the biggest trading partners for Canada. In 2018, the two countries had goods and services trade worth more than $714 billion. US had a goods and services surplus worth more than $7 billion.
Recently, data from Canada has been mixed. In June, the country reported that the economy expanded by 1.5% in April. This was slightly higher than the 1.4% that traders were expecting. In the same month, the country’s CPI increased at an annualized rate of 2.4%, which was better than the expected 2.1% while the core CPI increased by 2.1%. On the negative side, in April, retail sales increased by 0.1%, which was lower than the previous 1.3%. On trade, in May, the country’s exports increased to C$53.11 billion while imports increased by C$52.34 billion. The trade surplus was at more than C$0.76 billion. The country’s unemployment rate increased slightly to 5.5% from the previous 5.4%. Yesterday, the housing starts increased by 245.7K in June. This was higher than the expected 210k.
These data show that the Bank of Canada (BOC) may not be under pressure to lower rates. In fact, the bank will likely reiterate that low interest rates will be left unchanged for the rest of the year. The main determinant for the next rates decision will be the Federal Reserve. Investors expect the Fed to slash interest rates in the upcoming meeting. If the bank does indeed slash rates, and if it signals that more rate cuts will come, the BOC could be under pressure to slash rates.
The decision comes at a time when the Canadian dollar has strengthened significantly against the USD. The USD/CAD pair reached close to the lowest level this year. On the one-year chart below, this price is slightly below the 20-day and 10-day moving average while the RSI has been moving higher. Today, the pair will likely remain in this holding pattern as investors wait for a statement from the Fed chair and the BOC interest rates decision.