CAD swoons after BOC; Large DOE build fails to sink Oil


  • CAD drops as BOC remove hiking bias

  • USDCAD breaks above $1.35

  • Oil near recent highs despite large DOE build


There’s been a sizable move in the Canadian dollar this afternoon after the Bank of Canada (BOC) rate decision, with the Loonie falling sharply as the bank abandoned its hiking bias. The overnight rate was kept on hold at 1.75% as was almost unanimously expected, but what looks like a clear dovish shift from the BOC has taken its toll on CAD. Selected comments from the accompanying statement are as follows:

  • Abandons bias for higher rates

  • H1 2019 growth expected to be slower than anticipated

  • Output gap widened in Q1 but is expected to narrow over time

  • 2019 GDP forecast cut to 1.2% from 1.7%  

  • Neutral rate estimated between 2.25% and 3.25%

USDCAD surged by around 70 pips in the minutes after the announcement, with the pair breaking above prior resistance around 1.3470 to trade at its highest level since the start of January. Source: xStation


A BOC press conference is scheduled to start at 4:15PM (BST) and this could obviously have a major impact on the Canadian dollar.


Not long after the BOC decision the weekly crude oil inventories were released, in what can be a market mover for CAD. Due to the high levels of Oil exports in the Canadian economy the currency tends to historically exhibit a positive correlation with crude oil, although this relationship does appear to have broken down of late.

There’s been a large divergence open up between USDCAD and Oil as the former has continued to rise along with the latter - they previously exhibited an inverse correlation (Oil axis inverted). Source: xStation


Turning attention to the Oil inventory release itself and there was a large increase for the 3rd time in 4 weeks. The rise of 5.5M was far above the 0.9M expected and marks a big jump on the -1.4M seen last time out. However, this alone shouldn’t be too much of a negative shock for the market as last night’s API came in at +6.9M and some traders believe this represents a truer gauge of market expectations than the consensus forecast which is derived ahead of the API release.   


The current inventory levels are still hugging the 5-year average after the latest release showed a sizable rise. Source: XTB Macrobond

Oil remains close to its highest level of the year after the release with price enjoying a strong gain so far this week. The market remains above the 61.8% fib at 72.88 with the 78.6% at 79.02 still some 5 dollars away. Source: xStation  


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