The U.S. dollar fell against the Canadian dollar on Wednesday after the Bank of Canada left monetary policy unchanged, indicating that January’s rate cut has been sufficient to offset the negative impact of lower oil prices.
The BoC held its overnight cash rate at 0.75%, in line with expectations.
“Risks to the outlook for inflation are now roughly balanced and risks to financial stability appear to be evolving as expected,” the bank said in a statement.
The central bank surprised markets with an unexpected rate cut in January, which Governor Stephen Poloz described as “insurance” against the effects of lower oil prices.
The bank said it expects economic growth to have stalled in the first quarter of 2015 as a result of the oil price shock, but expects growth to rebound in the second quarter and subsequently strengthen on a quarterly basis.
The bank also said the very weak first quarter has led to a widening of Canada’s output gap and additional downward pressure on projected inflation.
However it expects the effect on underlying inflation from the weaker dollar to offset the output gap as the economy recovers.
Intra-day bias remains on the downside as 21 and 55 EMA crosses southward. SSRC oscillator is also signalling bearish momentum is still in play. More fall to 1.2250 is expected in the short term picture and 1.2131 in the medium term picture.