The outlook for the Canadian dollar improved after Canada’s central bank raised the interest rates and issued the statement, which was much more hawkish than expected. Still, the uncertainty about the global economic growth will likely limit the potential loonie’s gains.
The Bank of Canada decided to raise its target for the overnight rate by one-quarter of one percentage point to 1 per cent. The bank mentioned in its statement that “the global economic recovery is proceeding” and “consumption growth is expected to remain solid and business investment to rise strongly” as they “are being supported by accommodative credit conditions, which have eased in recent weeks”. On the other hand the bank warned that the slowdown of the US recovery will impact the Canadian economic growth, making it “to be slightly more gradual than it had projected”. In general, “financial conditions in Canada have tightened modestly but remain exceptionally stimulative”. The hawkish statement makes it likely for the Canadian currency to appreciate, but it definitely doesn’t give reason to expect the gains to be significant.
The Canadian dollar is also very influenced by the factors outside Canada, which for now look positive for the currency. Gains of crude oil and the global stocks made the growth-related currencies more attractive for the investors and the brighter outlook for the European economy can boost the loonie. But we should be wary of being too optimistic as the economic situation worldwide is far from being stable and the favorable conditions may change anytime. So, the global economic conditions tell the same tale: the loonie may rise for some time, but the gains will be limited.
The USD/CAD currency pair may swing between 1.0355 and 1.0675, but generally it won’t likely move away from current level in any direction (but in the next week can fall somewhat). The Canadian dollar entered uptrend against the euro and may be rising for some time but the rally will likely stop before the loonie will reach C$1.30 per euro.
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