BoC Interest Rate Decision (January 2019)


Posted on: 2019-01-09 (Day) By BCR Market Event


 

Rate Hike: Three More To Go In 2019?

The Bank of Canada will be announcing its cash rate decision on 9th January 2019. Bank of Canada lets its cash rate unchanged at 1.75% with a dovish message in October. The loonie sharply declined against the greenback following the announcement. For today’s decision meeting, the market is widely expecting the cash rate to be lifted with hawkish statements.

Canada Interest Rate (%)

 

 

BoC Interest Rate Announcement History

Date                      Previous              Consensus          Actual

09 Jan 2019         1.75%                   2.0%

05 Dec 2018        1.75%                   1.75%                  1.75%

24 Oct 2018         1.5%                     1.75%                  1.75%

05 Sep 2018        1.5%                     1.5%                    1.5%

11 Jul 2018          1.25%                   1.5%                    1.5%

30 May 2018       1.25%                   1.25%                  1.25%

18 Apr 2018        1.25%                   1.25%                  1.25%

07 Mar 2018       1.25%                   1.25%                  1.25%

11 Jan 2018         1.0%                    1.25%                  1.25%

06 Dec 2017        1.0%                     1.0%                    1.0%

 

 

Opportunities can be found in statement

 

Gross Domestic Product (GDP)

The Canadian economy as a whole grew in line with the Bank’s projection in the third quarter, although data suggest less momentum going into the fourth quarter. Business investment fell in the third quarter, in large part due to heightened trade uncertainty during the summer. Business investment outside the energy sector is expected to strengthen with the signing of the USMCA, new federal government tax measures, and ongoing capacity constraints. Along with strong foreign demand, this increase in productive capacity should support continued growth in exports.” Referring to BoC’s Monetary Policy Report.

The Gross Domestic Product (GDP) in Canada announced 1.9% in the Q2 2018, the data is formed a downward trend since Q1 2017. Real GDP (MoM) remained flat in June and rose at an annualized pace of 2.9% during the Q2 2018. The central bank is forecasting the GDP growth to average around 2% over the second half of 2018. Real GDP is projected to grow by 2.1% last year and 2019, before slowing to 1.9% in 2020. The sloping down of GDP is enough to justify for the rate cut, but it is unlikely to come before 2020.

Canada GDP Annual Growth Rate (%)

 

Inflation (CPI)

“Inflation has been evolving as expected and the Bank’s core measures are all tracking 2 per cent, consistent with an economy that has been operating close to its capacity. CPI inflation, at 2.4 per cent in October, is just above target but is expected to ease in coming months by more than the Bank had previously forecast, due to lower gasoline prices. Downward historical revisions by Statistics Canada to GDP, together with recent macroeconomic developments, indicate there may be additional room for non-inflationary growth. The Bank will reassess all of these factors in its new projection for the January MPR.” Referring to BoC’s Monetary Policy Report.

CPI inflation fell to 1.7% in November from 2.4% in the previous month and slightly below market expectations of 1.8%, due to some temporary factors. Inflation is expected to fade in early 2019 and then remain close to 2% target through the end of 2020.

Canada Inflation Rate (%)

 

Canada Unemployment Rate

A better-than-expected jobs report was released in December, the Unemployment Rate is remaining to the record low 5.6% in December 2018 while markets had expected an increase to 5.7%. It is the lowest jobless rate since 1976.  Indeed, household spending is expected to continue growing at a healthy pace, underpinned by solid employment income growth. Wage growth remains moderate. While the Unemployment Rate is around a record low, the bank’s ongoing view that the elevated level of household debt.

Canada Unemployment Rate (%)

 

 

Technical View

The loonie rises ahead of the BoC rate decision meeting. The USDCAD is continuing declining from 1.3662, which is the newly created barrier. In the 4 hours timeframe, indicators are gaining bearish momentum for both MACD and RSI. The price is well below the MA system, 50-DMA and 100-DMA are narrowing to show the potential reversal of the long order.  The markets are betting on rate hike on the 2019’s first rate decision. Technically, focus on 1.3157 support level for further movement.

USDCAD H4