At a highly anticipated monetary policy meeting yesterday, the Governing Council of the Bank of Canada expectedly decided to maintain the Overnight Rate unchanged at 0.25 per cent.
Additionally, the Council promised to carry on with its accommodative quantitative easing (QE) programme, with 'large-scale purchases of at least $5 billion per week Government of Canada Bonds'. The decision was largely inspired by current trends in global finance.
In its post-decision statement, the Governing Council reviewed the most recent economic and financial developments in Canada and abroad. As regards the international outlook, the Council pinpointed the faster-than-expected pick-up in US economic activity as a welcoming global development.
Current economic developments in Canada are largely driven by the pace of easing of Government restrictions, as the Council acknowledged a slow transition in the general recovery from the continued easing of epidemic restrictions to 'choppy and uneven recuperation of economic activity'.
The massive GDP slump in Q2 was cited as a major impediment for growth, though the rebound in overall economic activity is expected to alleviate some of the pains for the Canadian economy by the end of the year.
The Governing Council of the BOC did not bring anything new to the table during its September meeting, in a sense that the Council did not deviate drastically from its course that was undertaken in the wake of the coronavirus crash.
Near-negative inflation remains a primary concern for the Bank, which allows it some leeway in continuing to implement its extensive QE programme. By keeping borrowing costs low, the Council intends to support price stability in the economy by ensuring that households and businesses continue to have easy access to capital.
The somewhat dovish rhetoric of the BOC, particularly concerning the Governing Council's expectations for an even recovery, is likely to exert some pressure on the loonie.
Meanwhile, the greenback looks ready to rebound from yesterday's dip and continue developing its recent bullish run. As can be seen on the 4H chart below, the USDCAD reached a new swing low and is currently consolidating above the 30-day MA (in orange).
This is the second retracement leg in what looks like a newly emerging 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory. The next impulse leg (4-5) is thus likely to drive the price action higher towards the major resistance level at 1.33150.