Canada is a North American country of more than 37 million people and a GDP of more than $1.65 trillion. The biggest sectors of Canada GDP are in the real estate, manufacturing, mining, oil and gas and healthcare services. In the past few months, the country’s growth has been relatively sluggish. The GDP growth has declined from more than 3.5% in January 2018 to just 1.1% in May this year. This slowdown has happened as the world has been embroiled in a trade conflict. Last year, the Trump administration placed tariffs on Canadian goods like steel and aluminum before a new trade deal was made.
Yesterday, the Bank of Canada concluded its monetary policy meeting and left interest rates unchanged. At 1.75%. This was the fourth straight meetings that the bank has not raised interest rates. The decision made yesterday was in line with what analysts were expecting. In making this decision, the bank cited evidence that the economy was showing signs of weakness in the latter half of 2018 and is now showing signs of picking up in the second quarter. As evidence of this, the bank highlighted the growth of consumer spending and exports, which suggests that the previous weakness was temporary. In light of this, the bank became the only one being hawkish. The chart below shows the trend in Canada’s interest rates.
In making this decision, the bank looked at the various economic numbers like jobs, monthly GDP, and the trade situation. When it raises interest rates, it does so with the goal of helping slow down the economy to avoid a hard landing. It cuts rates when the economy shows signs of weakness. More than 50% of analysts expect the bank to cut rates in the October meeting. The statement said:
Overall, recent data have reinforced the 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, the Governing Council will remain data dependent and especially attentive to developments in household spending, oil markets, and the global trade environment.
The USD/CAD pair strengthened slightly after the Bank of Canada (BOC) said that it will not cut rates as many analysts had expected. The pair is trading at the highest level since early January. This price is along the 25-day moving averages and slightly above the 50-day moving average. The signal line of the MACD has been moving lower after the central bank’s decision. The pair will likely resume the upward trend it has been on in the past few weeks.