BoC holds rates steady but strikes a cautious tone

Following the BoC’s announcement, the Canadian dollar fell. The markets looked through the BoC’s statement which said that “higher interest rates will likely be required over time.” While the hawkish statement was expected to offset the dovish tone from the BoC, investors sold off the Canadian dollar

Bank of Canada

By Vince De Castro, Head of Marketing, Orbex

The Bank of Canada held the overnight rate steady at 1.0% as widely expected at the monetary policy meeting held last week. The central bank reiterated in its statement that officials will remain cautious in shaping the future course of rate decisions.

The decision to hold rates steady comes after the Bank of Canada turned hawkish earlier this year. While the markets were expecting to see a gradual rate hike, the Bank of Canada hiked rates twice this year already.

Expectations for a third rate hike also increased however, with the uncertainty surrounding the NAFTA deal as well as the Canadian exports getting hit due to a higher exchange rate, the expectations for rate hikes started to fall.

BoC: Wage growth and inflation dynamics to be key

The central bank said that focus remains on the household response to the previous two rate hikes earlier this year. Wage growth and inflation dynamics as well as the output remained one of the key factors for central bank officials going forward.

Despite the dovish tone from the Bank of Canada, the central bank’s statement highlighted the growth in the Canadian economy. The central bank said that exports which fell sharply during the third quarter could see growth resuming. This comes after the central bank assessed the trade data for October. The stimulus package via the infrastructure spending was also seen to be showing signs of contributing to the economy.

This was underlined by the fact that consumer spending was healthy in the third quarter, supported by an increase in wage gains and business investment. The central bank said that the above factors helped to contribute to growth after a solid performance in the first half of the year.

BoC urges patience as higher rates likely over time

Following the BoC’s announcement, the Canadian dollar fell. The markets looked through the BoC’s statement which said that “higher interest rates will likely be required over time.” While the hawkish statement was expected to offset the dovish tone from the BoC, investors sold off the Canadian dollar.

The U.S. dollar gained, partly led by stronger than expected private payrolls data. The FOMC meeting due this week is also expected to see the Fed hiking interest rates by 25 basis points as well.

Analysts noted that despite the hawkish statement, the BoC could be expected to hike rates just two more times next year. According to the chief economist at CIBC World Markets, the BoC did not delve much into the recent jobs report. Canadian unemployment rate was seen falling to 5.9%. This was stronger than the forecasts of 6.2% and down from 6.3% previously.

The Canadian economy also added 79.5k jobs beating estimates of 10.2k and more than doubled from the 35.3k headline jobs that were seen the previous month. The monthly GDP data also showed a modest rebound with growth seen rising 0.2% after previous month’s decline of 0.1%.

The economists are expecting that while the central bank could hike rates next year, the timing of the rate hikes remained inconclusive. This led many to expect that the BoC’s rate hike could be subject to the trade balance as well as the exchange rate.

Inflation remains one of the key worries for the central bank which could also be impacted by a stronger exchange rate; something that the BoC is not expected to tolerate. The moderation in the Canadian dollar is however expected to offset the impact from the previous quarter.

Read this next

Retail FX

Malaysia regulator exposes OctaFX clone, shady FB profiles

Malaysia’s financial regulator today warned online investors about the risks of following investment tips made on social-media platforms.

Digital Assets

Crypto trading volume spikes at Swiss bourse amid FTX collapse

The shockwaves from the historic collapse of Sam Bankman-Fried’s crypto empire are still being felt across the industry, but some trading venues are actually doing better because of it.

Executive Moves

CMC Markets adds Camilla Boldracchi to institutional sales

UK’s biggest spread better, CMC Markets has promoted Camilla Boldracchi to take on an expanded role within its institutional sales desk.

Institutional FX

FXSpotStream reports $1.48 trillion in monthly volume for November

FXSpotStream’s trading venue, the aggregator service of LiquidityMatch LLC, reported its operational metrics for November 2022, which moved higher on a yearly basis but reflected weak performance across executed trade volumes when weighed against the figures of the prior month.

Retail FX

Interactive Brokers’ client activity drops 30% YoY

Interactive Brokers LLC (NASDAQ:IBKR) saw 1.95 million daily average revenue trades, or DARTS, in November 2022 compared to 1.96 million transactions in the prior month.

Digital Assets

The rise of Crypto ETPs in traditional exchanges as crypto winter deepens

Institutional investors are increasingly looking at traditional regulated exchanges as their first route into digital assets amid market turmoil caused by the crypto winter and the collapse of several big names within the space, including FTX. Acuiti and Eurex surveyed 191 buy and sell-side firms on their views of the digital assets markets in order […]

Digital Assets

TP ICAP’s crypto arm receives FCA’s go-ahead

UK interdealer broker TP ICAP has received a regulatory go-ahead to launch its cryptocurrency services in the UK. The bid shows that the recent collapse of FTX exchange has done little to damp the interest of big names in running their own crypto business.

Industry News

Coin Signals founder to pay $2,847,743 after prison sentence over crypto Ponzi scam

The U. S. District Court for the Southern District of New York has ordered Jeremy Spence, founder of Coin Signals, to pay $2,847,743 in restitution to victims of a fraudulent virtual currency scheme.

Digital Assets

CME Group goes DeFi: Reference rates and real-time indices of Aave, Curve, Synthetix

“These rates are designed to provide traders, institutions and other users transparency and price discovery across a much broader range of tokens, allowing them to confidently and more accurately value cryptocurrency sector specific portfolios and manage price risk around various blockchain-based projects.”

<