Rates On Hold, QE Cut Further

The July Bank of Canada meeting held yesterday saw the central bank striking an optimistic tone on the economy. In line with expectations, the BOC further reduced its asset purchase program, while holding rates steady at record lows of 0.25%. The bank’s asset purchase program was cut by a further $CAD 1billion per week and now sits at just $CAD 2 billion per week, half of the initial program size.

“Not There Yet”

Speaking at a press conference held after the decision, the governor of the BOC, Tiff Macklem, told reporters: "The reopening of the economy and the strong progress on vaccinations have given us reason to be more optimistic about the direction of the economy." Despite the upbeat message, the BOC head was keen to retain an air of caution, and added a caveat to his message, saying: "But we are not there yet, and we are mindful that the process is likely to be bumpy, and some scars will remain."

Muted Market Reaction

The market reaction to the meeting was somewhat muted. Despite the bank satisfying expectations by announcing further tapering, bulls were somewhat disappointed by the BOC cutting its growth forecasts for the rest of the year. The BOC now forecasts growth of 6%, down from 6.5% in April, despite saying that “the downside risks associated with the pandemic have significantly diminished.”

Inflation To Run Hotter Than Target

Additionally, the BOC’s updated view on inflation likely underwhelmed bulls. The BOC reiterated its view that the current lift in inflation is likely to be temporary and confirmed that, at any rate, it is willing to allow inflation to run hotter than the upper limit of its 1%-3% target range, meaning that the bar for raising rates has been lifted. The market is currently projecting a rate hike by end 2022, in line with the BOC’s own forecasts. However, there is still scope for this projection to be brought forward should data significantly lift in the coming months.

Technical Views


With the RBNZ now appearing more hawkish than the BOC, there is room for further upside in the pair. Price has broken out above the .8751 level and with MACD and RSI both bullish, while above the level, the focus is on the .8852 level next – a break of which will see bulls targeting .8990 next.