Large USD/CAD drop after Bank of Canada statement doesn’t add up
I don’t quite see the reasoning for the 70-pip drop in the Canadian dollar after the Bank of Canada statement.
The explicit reference to ‘neutral’ was removed but Poloz telegraphed that and it was replaced by words that couldn’t be interpreted as anything but ‘neutral’.
The only bullish commentary was on a pickup in exports but I don’t see anything here that would indicate hikes any sooner. I think part of what fueled the slump in USD/CAD were sellers who were waiting in the weeds after retail sales. The report wasn’t as bad as the headlines seemed but no one wanted to fade it until after the BOC.
Analysts at CIBC are out with a similar take, they say the BOC removal of ‘neutral’ not hawkish, simply reflects recent speech by Poloz.
Update: Just to add to this, the forecast for when the economy would return to full capacity was pushed back to H2 2016 from mid-2016. There’s nothing hawkish here.