Canadian: «Black Band»


Cad currency symbolLatest news from Canada cause investors and analysts for a fresh look at the prospects of Canadian currency. In 2012, the Canadian dollar enjoyed the support, because of a rather aggressive rhetoric of the Bank of Canada, whose leadership every now and then stated that in the foreseeable future, the central bank can take to increase its base rate.

Published last week report of the Bank of Canada’s monetary policy was like a bolt from the blue. Suddenly, the head of the central bank Governor Mervyn King and his team said that the prospect of a rate hike in mind estranged low inflation, which does not reach the target level of 2%.

Confirmation of concerns of the Bank of Canada for the relative weakness of inflationary pressures was presented on Friday, January 25 statistics. December’s consumer price index (CPI) was released at +0.8% y / y vs. +1.2%. And the so-called “base” rate of inflation, an employee for the Bank of Canada’s main reference, came at +1.1%, and also didn’t reach the forecast of +1.4%.

And publishing reports, and statistics on inflation were impulses, which caused a noticeable decrease of the Canadian dollar against its major competitors.

Generally, if you analyze the situation, you can not say that this news somehow fundamentally changed the particular situation of Bank of Canada’s among Group of Seven central banks.

Judge for yourself:

  • The Fed is going to keep rates at near zero level up to about mid-2015
  • The Bank of Japan, who undertook up inflation to 2%, will be forced to adopt a policy of zero interest rates, it is obvious, even longer than the Fed
  • The ECB is not going to cut rates, but at a time when up to the new year in the region is expected to negative GDP dynamics, one can hardly expect them to rise.
  • The Bank of England, given that the country is on the brink of a third five-year recession, too, is not in the list of candidates to the tightening of monetary policy

Only the Bank of Canada says we will raise rates. Though not as fast as expected, but we will.

A “black” band in life of the Canadian dollar. But the objective fundamental strength of the loonie makes me inclined to think that this band will not be very long, and perhaps will open long positions in that currency at very attractive levels.

But, we can not forget that the current head of the Bank of Canada Governor Mark Carney has less six months before the end of his term. He moves to a new job – to manage the Bank of England. Who will be the new head of Canada’s central bank – “hawk” or “dove”? The answer to this question will depend on the ability of the loonie to continue its bullish trend.


About Author

I have been friend with currency market since 2006. I hope that this friendship is not only useful to me, because over the years I have repeatedly provided analytical services to various companies and media outlets. I love fundamental analysis. Every day, I am convinced that the statistics is not boring numbers but fascinating reading, which, moreover, can predict the future. Technical analysis is also not neglected, especially as my hobby - finding effective algorithms for automated trading systems.