Major Takeaways from the Bank of Canada’s Monetary Policy

The Bank of Canada decided to keep interest rates unchanged at 0.5% after the monetary policy meeting on July 13. The Bank of Canada’s chief Stephen Poloz gave an optimistic view of the economy during the post monetary policy press conference. Poloz thinks that the Canadian economy is slowly adjusting to the fall in oil prices with non-commodity exports supporting growth.

It also expects energy sector investments to revive in 2017. Markets were broadly expecting the rates to be unchanged given that most of the data released from the Canadian economy were positive—except for last week’s employment figures.

The Bank of Canada also stuck to the existing rates due to concerns about growing strength in the housing markets. The Bank of Canada also expects growth in major trade partners in the US to trickle down to the Canadian economy. Looking at forecasts by the Bank of Canada, although it expects the fundamentals to be strong, there’s a downward revision in GDP forecasts, while the inflation target remains at 2%.

The US dollar-Canadian dollar currency pair is inversely related to the Canadian dollar. It saw a sharp fall following the Bank of Canada’s decision to keep rates unchanged. The currency pair fell to a low of 1.2938 before bouncing back towards the end of the day to close at 1.2976. The Guggenheim CurrencyShares Canadian Dollar ETF (FXC) posted gains. It rose by 0.42% on July 13.

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Looking at Canadian ETFs, the iShares MSCI Canada ETF (EWC) rose by 0.32% on July 13, following the Bank of Canada’s monetary policy release.

Canadian banking ADRs (American depositary receipts) trading in US markets were also following a strengthening trend. The banking ADR Bank of Montreal (BMO), for example, rose by 0.76%. The Royal Bank of Canada (RY) and Bank of Nova Scotia (BNS) were trading higher by 0.63% and 0.95%, respectively. Also, Canadian Imperial Bank of Commerce (CM) saw a rise of 0.48% on July 13.