Breakdown of the latest developments on the global exchanges
Oct 28, 2020, 3:15 PM GMT

Dovish BOC Reshapes its QE Program, Weighs in on Slower Recovery in Q4

Or Gooderham Flatiron Building in downtown Toronto - Toronto, Ontario, Canada

In the first highly anticipated monetary policy meeting of a major central bank from this week, the Governing Council of the Bank of Canada expectedly decided to maintain the Overnight Rate unchanged at 0.25 per cent.

As was projected in our 'Weekly Expectations' article from Monday, Canada's recent inflationary pressure developments played a crucial role in the Council's ultimate decision.

In its effort to foster price stability and inflation close to 2 per cent, the Council of the BOC decided to repurpose its quantitative easing (QE) programs in order to address the recent developments in the coronavirus crisis.

"The Bank is recalibrating the QE program to shift purchases towards longer-term bonds, which have more direct influence on the borrowing rates that are most important for households and businesses. At the same time, total purchases will be gradually reduced to at least $4 billion a week. The Governing Council judges that, with these combined adjustments, the QE program is providing at least as much monetary stimulus as before."

The BOC also recognised the reeling dollar during the summer months as the primary cause for the parallel strengthening of the loonie. However, this inverse relationship is likely to stave off the rally of the loonie now that the greenback is back on the rise.

Moreover, the Canadian dollar is also likely to suffer from the fallout of the waning oil prices in the mid-term, given that the global demand is expected to continue depreciating.

As can be seen on the 4H chart below, the USDCAD has already started appreciating ahead of BOC's decision. The pair broke out above the major resistance level at 1.32300 and is currently headed towards the minor resistance at 1.33400.

The latter serves as the upper boundary of a Test Area, which could prompt the establishment of a minor bearish pullback. Meanwhile, the MACD indicator demonstrates the continuously rising bullish momentum in the short-term.

USDCAD 4H Price Chart