As expected, the Bank of Canada (BOC) cut its interest rates by 25 basis points to 4.75% in June and became the first G7 bank to reduce its interest rates after four years.
In the official statement, BOC detailed that preferred measures of core inflation have slowed and that “recent data has increased our confidence that inflation will continue to move towards the 2% target,” so much so that “monetary policy no longer needs to be as restrictive.“
In his presser, BOC Gov. Tiff Macklem shared his openness to further rate cuts, saying that it’s “reasonable” to expect further interest rate cuts if the economy continues to “evolve broadly as we expected” and if inflation pressures continue to ease.
However, Macklem also stressed that “We’re going to be taking our interest rate decisions one meeting at a time.”
The BOC head honcho is also pretty chill about diverging interest rates between the U.S. and Canada, saying “There are limits to how far we can diverge from the United States, but we’re not close to those limits.”
Market Reactions
Canadian dollar vs. Major Currencies: 5-min
Overlay of CAD vs. Major Currencies Chart by TradingView
The Canadian dollar, which was finding support from a risk-friendly trading environment, traded in the green against safe havens like JPY, CHF, and USD ahead of BOC’s event.
BOC’s rate cut, while expected, still caused a sharp downswing for the Loonie. Luckily for the bulls, a combo of buy-the-rumor, sell-the-news situation and Macklem’s emphasis on future decisions being on a monthly basis as well as his lack of concern over diverging interest rates with the U.S. helped draw in buying demand.
CAD pulled back most of its post-BOC event losses against its major counterparts though they weren’t enough for the comdoll to end the day in the green except against JPY and CHF.