Bank of Canada Rate Decision Preview

The Bank of Canada is widely expected to keep the interest rate unchanged at 0.25% at its meeting on Wednesday, with Bank of Canada Governor Tiff Macklem recently indicating that the bank will not raise rates Until 2023.

The Canadian dollar hit 1.2994, its highest against the US dollar on last Tuesday and its highest level since January 8th. Resistance comes in at 1.3000 as well as improved US data which was a hindrance to the pair’s advance for a week but the USD/CAD managed to close Tuesday at 1.3239, the best close since August 18th.

The latest jobs report indicated that Canada had shed more than 3 million jobs during the lockdown in March and April, but after that, 1.9 million jobs were laid off, equivalent to 63.5%, and the job addition in August was 245,800, slightly below expectations of 275,000, the fourth positive month in a row brought the unemployment rate rose to 10.2% from 13.7% in May.

As for the PMI for August, the Canadian economy continued to expand with the Markit manufacturing PMI rising to 55.1 from 52.9 in July, the best record since August 2018.

As for Canadian consumer prices, they fell sharply during the lockdown period, as the annual CPI fell from 2.2% in February to -0.4% in May. Prices recovered after that in June to 1.1%, but fell in July to 0.7%.

Despite the recovery of the Canadian economy and its relative success in facing the effects of the Corona pandemic and lockdown -despite the fragility of this success- factors will keep the Bank of Canada near zero for several years. More than a third of workers are still unemployed, with the failure of entrepreneurship and the collapse in crude oil prices, all of which confirm that the demand for Canadian resources is below the required level and the inability of central banks to raise inflation to their targets will keep rates lower for longer