As expected, the Bank of Canada (BOC) cut interest rates by 25 basis points to 4.75% in June and became the first G7 bank to cut interest rates in four years.
In the official statement, the Bank of Canada explained that preferred measures of core inflation have slowed and that “The latest data has increased our confidence that inflation will continue to move towards the 2% target.” To the extent that “Monetary policy no longer needs to be as restrictive.“
In his press conference, Bank of Canada Governor Tiff Macklem expressed openness to further rate cuts, saying it was “reasonable” to expect further rate cuts if the economy continues to “develop as broadly as we expected” and if pressures persist. Inflation is falling.
However, Macklem also emphasized that “We will make our decisions on interest rates one meeting at a time.“
The head of the Bank of Canada (BOC) is also very cold about the interest rate divergence between the US and Canada, saying “There are limits to how far we can go from the United States, but we are nowhere near those limits.“
Market reactions
Canadian dollar against major currencies: 5 minutes
Overlay of the Canadian dollar against 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 such as the Japanese yen, Swiss franc and US dollar ahead of the Bank of Canada event.
The interest rate cut by the Bank of Canada, although expected, still caused the Canadian dollar to fall sharply. Fortunately for the bulls, a combination of buying rumors, selling news, Macklem's focus on making future decisions on a monthly basis as well as his lack of concern about interest rate divergence with the US helped attract buying demand. .
The Canadian dollar withdrew most of its losses incurred after the Bank of Canada's decision against its major counterparts, although they were not enough for the pair to end the day in the green, except against the Japanese yen and the Swiss franc.