The statement by the Bank of Canada following its interest-rate decision seems to be a bit less dovish, and slightly more hawkish, than what was broadly expected. There was some chance of a rate cut (about 1 in 5 prior to the release) which may have caused some traders to be positioned CAD short ahead of the release.
In the statement we see the growing concerns about Europe including a recession that will be more pronounced than the BOC had anticipated as well as moderating growth in Asian economies such as China.
However when it comes to the US and Canada the data has been a bit more positive. On balance Canadian data shows growth stronger-than-expected compared to the bank's previous forecasts.
From BOC Statement: On balance, recent economic indicators in Canada suggest that growth in the second half of this year is slightly stronger than the Bank projected in October. Household expenditures have more momentum than had been expected and business investment remains solid. Going forward, the weaker external outlook is expected to dampen GDP growth in Canada through financial, confidence and trade channels. The economy also continues to face competitiveness challenges, including the persistent strength of the Canadian dollar.
Also the language around inflation carried a slightly more hawkish tone as total and core CPI had been slightly higher than projected.
Although total CPI inflation has been slightly higher than projected, the Bank continues to expect the inflation rate to decline as a result of reduced pressures from food and energy prices and ongoing excess supply in the economy. Core inflation has also been slightly firmer than projected and is expected to ease as the output gap persists well into 2013.
We previewed this release yesterday and listed out some key factors that may help the CAD going forward in the next few weeks. Take a look.