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We cannot appreciate why CAD has been appreciating against USD as Bank of Canada’s has decided to maintain status quo in its monetary policy, overnight rates are kept unchanged at 0.50% which is in line with forecasts.
The central bank raised a caution that the forest fires in Alberta will cost the country approx. 1.25% points (annualised) of GDP in Q2. Of course the medium to long term effects of such a wild fire “shock” is positive.
The BoC assumes that, as it expects GDP to recover in Q3 as oil production rises and the reconstruction efforts will start.
Otherwise the central bank is of the view that everything is developing as expected in April’s monetary policy report.
Inflation is close to target and as stated in previous statements “the current stance of monetary policy is still appropriate”.
On the backdrop of this assessment, it would therefore have been difficult to understand had the BoC sent out new dovish signals as some seem to have expected. The next monetary policy report with the new BoC forecasts is not due until July.
That means in our opinion, the BoC can sit back and observe what the Fed will signal or do over the coming weeks as long as CAD does not appreciate too notably. That is unlikely if the rate hike expectations for the Fed Funds continue to rise (see above).
And CAD is unable to benefit from a rising oil price to the extent it suffers when the oil price falls. One way or the other there is not a lot pointing towards a notably stronger CAD short term.
