Canadian Dollar Saved by Inflation Target Being Met but Outlook Looks Worrying

Canadian Dollar Saved by Inflation Target Being Met but Outlook Looks Worrying

The Canadian dollar was saved today by meeting its October inflation targets. However, the Canadian dollar narrowly avoided missing the figure, which could have spelled a negative impact to the already month-long lows it had been experiencing. Investors are worried for the outlook of the ‘Loonie’ as the Bank of Canada appears to be eyeing another interest rate cut before mid-2020.

Inflation Rate Figures Met for October

Yesterday, Canada’s inflation rate figures for October were released. The target was set at a damage-limiting 0.3% rise, to which the figure was announced at the same increase percentage. This kept the annualised rate of price growth stable at 1.9%. With the news of the targets being met, the Canadian dollar retreated from a November low against the pound sterling, though analysts reported this boost did not sustain for long.

Economists Suggest That Inflation Figures Will Not be a Major Driver for BoC Decision Over Cuts

Royce Mendes, CIBC Capital Markets Economist mentioned that Governor Poloz of the Bank of Canada will not be kept awake at night due to wiggles in inflation, but rather, his attention will be focussed on growth indicators in the BoC’s decision in making a rate cut in the months to come.

However, the markets are very interested in these inflation figures as these are the exact price pressures in which the BoC is attempting to alter with its interest rate policies. Increases in the cash rate are being put in operation to ensure that the consumer price index does not shift meaningfully over the set target. Whilst cuts to the benchmark of borrowing costs ensure that the price index does not fall too low below the set target in years to come.

Dovish Remarks from BoC’s Carolyn Wilkins Worries Investors

In the recent speech from Carolyn Wilkins, of the Bank of Canada, she suggested that the BoC is ‘putting on the winter tyres before it snows’ in regards to the banks monetary approach. These comments suggested that the bank is set to take a dovish approach to its future monetary policies and may look to ‘play it safe’. This news was interpreted by many as a preference to cut the cash rate before the global slowdown arrives on Canadian land, instead of waiting until afterwards.

Wilkins also stated that the Canadian economy is in a good place currently, but the global economy is “facing immense challenges” which includes the US-China trade war. She attempted to smooth things over by suggesting that Canada does have a large arsenal of tools to fight an economic downturn, including “large-scale asset purchases”, which is widely viewed as a byword for currency-crushing program.

The BoC will continue to monitor the economic slowdown before it makes any further changes but the hesitancy is weighing on the Canadian dollar as a gentle approach appears to be the current move played by the bank.

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