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Bank of Canada Continues Quantitative Easing

Last updated 1/19/2010 9:25 AM ET (GMT -5) 3 Comments

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Kathy Lien

Director of Currency Research, GFT

Due to a strong currency and weak U.S. demand, the Bank of Canada  decided to continue their Quantitative Easing program, pushing the loonie lower against the greenback.  As expected, the BoC left interest rates unchanged at a record low of 0.25 percent but they set a new schedule for their Purchase and Resale agreements, indicating that they are not ready to slam the breaks on QE.  The central bank also reiterated their commitment to leaving rates unchanged until June so there shouldn't be any major surprises until then. 

Despite a continued global recovery, the Bank of Canada revised down their 2010 GDP forecast from 3 to 2.9 percent and revised up their 2011 GDP forecast from 3.3 to 3.5 percent.  The risks to inflation are roughly balanced but the general risks to their inflation projection are tilted slightly to the downside. Overall, the tone of the BoC report suggests that they have grown more dovish since their last monetary policy. The central bank's plans to provide continued stimulus should limit a further decline in USD/CAD.  It is important for forex traders to remember that the stronger the CAD becomes, the more reluctant the BoC will be to raising interest rates. 

Meanwhile Canadian leading indicators rose 1.5 percent in the month of December, matching the strongest pace of growth since 1983, for the largest monthly advance since Sept 1958. All 10 of the underlying components of the report was neutral to positive with contributions primarily coming from an increase in new orders, durables and business service employment. The recovery in the U.S. economy helped to boost Canadian exports while consumers stepped up their purchases of durable goods. Even the hottest leading indicator report since 1983 has failed to sway the Bank of Canada because it is at odds with the recent deterioration in the IVEY PMI, retail sales and employment figures.

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Comments (3)

CecilFX

January 19, 2010 at 11:26 AM ET

So if we just bought USDCAD when the "BOC PREVIEW" article came out yesterday. We could have got in the trade at 1.0250. A reasonable stop could have been 1.0225 which was the low on 1/14. Currently it is at 1.0323. That is 73 pips with a 3:1 ratio. But, even a conservative target of 50 pips would yeild a 2:1 ratio. Seems like a decent trade.

Semaj

January 19, 2010 at 11:33 AM ET

I took 45 pips out of the market just before the news release in the scenario you described. Currently waiting for a pullback to re-enter.

CecilFX

January 19, 2010 at 11:33 AM ET

Yield sorry for the typo.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.