Like the ECB the Bank of Canada also had a more optimistic footing. The general hope is that the current vaccine will put recent woes behind the world economy and central banks are starting to cautiously enter into that hope. The Bank of Canada signaled that they too can see some possible light at the end of the tunnel.

Heading into the latest meeting there was a slight chance of a very small rate cut mooted by market participants. In the event rates were kept unchanged at 0.25% and bond purchases remained at the CAD $4 billion per week level. Interest rates were not expected to rise until 2023, like the Federal Reserve, however the bullish twist for the CAD was the revisions for growth. The end of 2021 growth is now seen as +4.6% vs +3.8% previously. Inflation was revised up to +1.5% vs +1.3%. The slow grind higher for oil has been helping the Canadian oil export economy and the growth revisions show the better outlook.

In terms of Governor Macklem’s noteworthy comments in the press was the BoC’s concern about a stronger CAD. The rise in CAD does provide some risks to the outlook for the Canadian economy, so the BoC will not want to thwart their own hand by appearing ‘too rosy’ on Canada’s prospects.

Out of the event the CAD rose sharply (USDCAD falls) sensing a better outlook for Canada. The OiS futures curve suggest that the BoC is likely to keep rates at the current level for the foreseeable future. Despite the better outlook for CAD there are no obvious candidates for an FX trade. However, remembering the CAD’s bias can be helpful as we move forward, particularly if/when we see strong domestic data either confirming or contradicting the BoC’s better forecasts.