Governor Tiff Macklem's Bank of Canada (BoC) is expected to maintain its overnight target rate at 5% for the second time following the October meeting, according to Wednesday's updates. This decision comes amidst a nearly 4% rise in the CAD/USD exchange rate favoring the USD since July's rate hike.
The BoC has signaled its readiness to raise rates again after holding the policy rate at 5% in September. This stance is driven by persistent inflationary pressures, despite a recent drop in the Consumer Price Index (CPI)-measured inflation from 4% to 3.8%, as reported by Statistics Canada. Macklem expressed concerns over these stagnant inflation rates, indicating that the central bank's focus remains on managing price stability.
The BoC's Business Outlook Survey shows that over 70% of firms have reported negative effects from higher interest rates. This data suggests that the rate hikes have started to impact businesses, potentially slowing economic growth.
However, reports from the Canadian Real Estate Association indicate a cooling market and flat GDP, suggesting that the BoC may hold rates steady, as predicted by analysts at the National Bank of Canada (OTC:NTIOF). The upcoming Monetary Policy Report will likely play a crucial role in future decisions, with Quantitative Easing (QE) and Quantitative Tightening (QT) being potential tools at the bank's disposal.
The Relative Strength Index (RSI), a momentum oscillator used to measure the speed and change of price movements, indicates a lack of seller interest in the CAD/USD pair. This signal suggests the potential for further uptrend in the exchange rate. As such, investors and market participants will be closely watching the BoC's actions and their impact on currency markets.
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