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%.
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.
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