- GBP/CAD sets new post-BoC policy statement for 2022
- Warns that inflationary pressures are widening across the CPI basket
- Say would be ‘ready to act more forcefully if necessary’
- After the second increase of 0.50%, the cash rate returns to 1.5%
Image © Bank of Canada, reproduced under CC license
The Canadian dollar climbed above all major currencies except the US dollar, while hitting the British pound during the mid-week session after the Bank of Canada (BoC) announced a second significant increase in its exchange rate and said it could act “with greater force”. ” if necessary.
The BoC warned on Wednesday that local inflationary pressures are widening with nearly three-quarters of items in the consumer price basket rising at rates of 3% or more, above the 2% target.
“The risk of high inflation taking root has increased. The Bank will use its monetary policy tools to bring inflation back to target and keep inflation expectations well anchored,” the BoC said in its statement, after warning that further increases in inflation are likely.
“The pace of further policy rate increases will be guided by the Bank’s continued assessment of the economy and inflation, and the Board of Governors stands ready to act more forcefully if necessary,” the bank said. in what was further guidance on the outlook for borrowing costs.
Above: British pound to Canadian dollar exchange rate displayed in hourly intervals alongside CAD/USD and upside down or reversed USD/JPY. Click on the image for a closer inspection.
The statement shows that the Bank of Canada’s monetary policy stance is becoming more hawkish, not less.
This may explain how the Loonie was able to withstand another onslaught from the US Dollar on Wednesday as it crushed the British Pound.
“The hawkish policy statement helped the CAD on the crossovers, but had little impact on the USDCAD. The pace of ISM is pushing rates higher, weighing on risk sentiment” , said Mark McCormick, global head of currency strategy at TD Securities.
“We are cautious about a further decline in USDCAD, given [high-frequency-fair-value] sits near 1.28 and the CAD is one of the most overbought pairs on our dashboard. As a result, we believe the reflex spike here will provide good levels to clear the CAD, where we remain short against the NOK. We also like to move into CAD shorts against AUD and NZD where it looks quite rich,” he added.
Above: Pound to Canadian dollar exchange rate shown alongside the spread – or spread – between the 02-year government bond yields of Britain and Canada. Click on the image for a closer inspection.
GBP/CAD losses extended to fresh 2022 lows as the Loonie recorded a more than one percent gain against the US dollar for the week to Wednesday.
The decision came with various measures of inflation in Canada ranging from 3.2% to 6.8% and marks an almost complete reversal of the significant interest rate cuts that were announced by the BoC in the first few days. of the coronavirus crisis when the cash rate was cut. from 1.75%.
“Our call for another 50 basis point hike in July would fit the definition of aggressive action he spoke of. ‘a potential need to slow down,’ said Avery Shenfeld, chief economist at CIBC Capital Markets.
“This flies in the face of our forecast that we will see signs of slowing growth in the early fall, allowing the Bank of Canada to slow to a 25 basis point hike in September and then a break before a final quarter-point 2.5% at the start of 2023,” Shenfeld added.
Above: GBP/CAD alongside CAD/USD and reversed or reversed USD/JPY. Click on the image for a closer inspection.