USD/CAD Retraces After Bank of Canada Keeps Rates Steady
USD/CAD pulled back by approximately 0.2% on Wednesday following the Bank of Canada's (BoC) decision to maintain its key overnight interest rate at 5.0%, in line with expectations. Despite the pullback, the pair retains its overall bullish tone within a rising channel after the US Dollar rallied on hotter-than-expected US inflation data. Currently trading in the 1.3660s
BoC Policy Statement: Inflation Easing, Growth Forecasts Increased
In its accompanying statement, the BoC acknowledged easing inflation pressures and continued quantitative tightening.
Key Takeaways
- Inflation is still elevated, particularly in shelter prices driven by rent and mortgage costs.
- BoC expects inflation to reach its 2.0% target by 2025, with a decline to near 3% in the first half of 2023 and below 2.5% in the second half.
- Growth forecasts revised upward due to higher immigration-driven population growth.
- BoC will closely monitor core inflation, supply/demand balance, wage growth, and corporate pricing behavior.
Inflation and Growth Outlook
The BoC downwardly revised its inflation forecasts and upwardly revised growth projections compared to its January report.
- CPI inflation forecast at 2.2% YoY in 2024 (down from the prior 2.4%).
- Real GDP growth forecast at 2.1% for 2024 (up from prior 1.6%) with stronger near-term growth attributed to higher population growth.