BOC Warns Of Sharpest Ever Downturn

Trading Tips

Asset Purchases Expanded

The Bank of Canada yesterday followed in the footsteps of the Fed as it announced details of an increase in its biggest ever asset purchases program. The BOC details expansions to its current purchases which will now include $ 35 billion in provincial bonds, and $ 7 million in corporate grade bonds. The BOC also noted that it will ramp up its purchases of short-term federal government paper and also increase money market assets.

Governor Poloz said: “These measures will work in combination to ease pressure on Canadian borrowers”. Looking forward, the governor said: “As containment restrictions are eased and economic activity resumes, fiscal and monetary policy actions will help underpin confidence and stimulate spending by consumers and businesses to restore growth”. Poloz assured investors that “The bank stands ready to augment the scale of any of its programs should market conditions warrant it”.

BOC Defends Actions

The BOC was the only bank of the G7 not to use QE in response to the global financial crisis and only employed such measures last month, highlighting the severity of the situation. This latest set of actions comes on the back of the BOC cutting interest rates to just above zero along with announcing $ 200 billion in asset purchases. However, Poloz was keen to distinguish between these operations and QE, saying that the BOC is simply acting to repair the functioning of credit markets, not attempting to reduce longer-term interest rates. On this matter, Poloz said: “With the 10-year yield sitting at 0.75% and the economy at the moment basically turned off, there’s very little purpose in conducting operations aimed at trying to lower longer term interest rates”.

Monetary Policy Report Warning

In the Monetary Policy Report issued separately yesterday, the BOC warned that the Canadian economy is headed for the most acute slowdown in its history. The BOC opted not to issue any economic forecasts at this point, due to the great uncertainty present in the economy currently. However, the BOC did offer tow set of guidelines based on measured scenarios which could see the economy shrink between 15% and 30% in Q2%.

Technical View

USDCAD (Bullish above 1.4003)

From a technical viewpoint. The weakness in CAD has seen USDCAD breaking above the bearish trend line from 2020 highs. With VWAP positive and with price sitting back above the monthly pivot ( 1.4003) the market looks poised for further upside here with local highs at 1.4234 the next resistance area to watch.

BOC Warns Of Sharpest Ever Downturn

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Share this post:

Let’s block ads! (Why?)

Tickmill

Leave a Reply

Your email address will not be published. Required fields are marked *