In the latest Bank of Canada statement, they kept interest rates unchanged at 0.25% and their QE program unaltered at $4 billion per week. The Bank of Canada recognised that the recovery was well underway and will adjust its QE purchases as required to help bring inflation back on target.
In terms of future projections, the Bank of Canada is following the Federal Reserve and the Reserve Bank of Australia with no interest rates hikes seen until 2023.
The Bank of Canada recognised that economic momentum heading into the fourth quarter appears to be stronger than was expected in October but, in recent weeks, record high cases of COVID-19 in many parts of Canada are forcing re-impositions of restrictions. The Bank of Canada is expecting this to drag growth lower for the first quarter of 2021. The Bank of Canada is expecting a delay in the recovery as the vaccine takes time to roll out. All in all, it was a holding statement.
You can read the full statement here.
There was very little in terms of surprises from the Bank of Canada decision and the USDCAD moved very little on the announcement. There is no clear directional bias for a trade from the decision. In the near term, the main driver of the USDCAD will be the prices of oil and the path of the USD. A strong USD = USDCAD strength. Weaker oil prices = USDCAD strength and vice versa.
The next monetary policy meeting is January 20, 2021.