The BoC kept interest rates unchanged, as expected, reinforcing its mission to keep low for as long as it takes to get the Canadian economy back on its feet, as expected. It is keeping a close eye on the pandemics and it believes that Canada’s Q1 will contract due to the lockdowns that are taking place in various provinces. Also, as we can see this morning, a stronger Canadian dollar will have a further negative effect on the economy leaving the BoC little else but to sit and watch with a possible chance of a “wafer thin” rate cut. The BoC can make adjustments to its bond purchasing, possibly allowing long term rates to fall even further.
As of now President Biden is making his inaugural speech, hoping to unify a split country, equities are moving higher with an across the board weaker USD. Investors are now turning to emerging markets with additional focus on South East Asia and China. Expectations are for China to ramp up its economy as it was the only major country to have positive growth in 2020 and it is ready to grow even more in 2021. As the vaccines are given out, optimism will increase and expectations of pent-up spending will cause short term demand of large proportions which emerging markets are able to fill.
The CAD is stronger based on a weaker USD, and will stay at these levels near term.
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