The Bank of Canada (BoC) crushed the Canadian dollar yesterday and set the stage for additional losses in the coming weeks. The BoC left its policy interest rate unchanged at 1.75%. That decision was widely expected. The surprise came when the central bank eliminated the reference to future rate hikes. That represented capitulation.
The BoC admitted that its economic growth forecasts were "out to lunch" when it slashed 2019 Gross Domestic Product growth estimates from 1.7% to 1.2%. It is the third time it has cut its forecast since October which raises questions about the validity of their latest assumptions.
The release of the quarterly Monetary Policy Report (MPR) didn’t do the Canadian dollar any favours either. The BoC said that it was not alone in forecasting the global economic slowdown and pointed to trade tensions as a key reason for the lack of growth. The MPR cited four reasons for maintaining an accommodative monetary policy, namely housing, oil, trade, and fiscal spending.
The Bank of Canada is not alone in downgrading its outlook. Overnight, the Bank of Japan and Sweden’s Riksbank did the same thing, which contributed to the broad U.S. dollar strength.
The greenback is trading in Toronto on a firm note, posting gains across the G-10 spectrum, except against the Japanese yen. EUR/USD is under pressure in Toronto and has fallen from $1.1161 to $1.1129, a level last seen in June 2017. The single currency was undermined by headlines from the release of the European Central Bank Bulletin. They repeated ECB President Mario Draghi’s comments that euro-zone risks were skewed to the downside.
The broad U.S. dollar strength has taken a toll on Sterling as well. GBP/USD is trading at session lows, weighed down by ongoing Brexit concerns.
Oil prices have recouped all of yesterday’s losses that occurred when the Energy Information Administration (EIA) released data showing U.S. crude inventories increased in the week ending April 19. Traders jumped all over the news that Russia was having quality control issues with crude in its pipelines to Germany and Poland. Apparently, both countries suspended shipments.
The latest rally in oil prices didn’t provide any support for the Canadian dollar. The dovish Bank of Canada policy stance and bullish USD/CAD technicals have undermined the currency.
Canadian dollar selling pressures may resume again today following the release of the weekly U.S. Jobless claims and March Durable Goods orders data. Better than expected reports will spark renewed demand for US dollars and undermine the Canadian dollar in the process.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
