Details of the Bank of Canada rate decision July 15, 2015:
- Cuts 2015 GDP forecast to 1.1% from 1.9%
- Cuts 2016 GDP forecast to 1.5% from 1.7%
- Cuts Q2 GDP estimate to -0.5% from +1.8%
- Estimates GDP 'contracted modestly' in first half
- Sees downside risks to inflation
- Extent of Canadian export weakness is 'puzzling'
- Financial conditions remain 'highly accommodative'
- Economists and markets were evenly divided on whether the BOC would cut rates or leave them unchanged
- Estimates amount of excess capacity in economy 1.25% to 2.25%, April estimate was 0.5%-1.5%
- Overall labor market conditions have held up reasonably well
- Vulnerabilities related to household imbalances remain elevated
- Most likely scenario is a gradual unwinding of imbalances but a disorderly unwinding could have sizeable negative effects
- The output gap is significantly larger than was expected in April, and closes somewhat later
The Bank of Canada now forecasts that the economy is in recession. USD/CAD jumps to 1.2909. -- a six year high.
There's little in the way of forward guidance but forecasting a 'significantly larger' output gap and openly worrying about downside risks to inflation is certainly dovish. With Yellen talking about hikes today and USD/CAD breaking out, there's plenty of upside left in USD/CAD.
