The Canadian dollar has been overshadowed in response to the Bank of Canada’s rate policy, which is tightening bias and the election results in the Quebec province of Canada. The Bank of Canada’s new policy announced this morning at 9:00 AM, that they are sticking to the policy rate of 1 percent, but is not as excited about providing stimulus as other central banks like, the US Federal Reserve has been.  The bank is considering raising the interest rate, due to the global slowdown and is also expecting a recovery in the economy during the next year.

Canadian Dollar

The Canadian dollar is progressively weakening against the USD, the U.S. dollar at 10.:00 AM stood at  C$0.9902, weaker than Wednesday’s morning’s opening at C$0.9881 in the North American markets.

The bank’s decision was also predicted by several analysts, “It was pretty much as expected. No fundamental change in the very mild tightening bias. Overall, nibbling on the edges, there were some hints of slightly less hawkishness here,” said Doug Porter, deputy chief economist at BMO Capital Markets.   “There wasn’t much meat on these bones … And I think that’s exactly what the bank wants. I don’t think they were trying to send any big message here.”

The elections in Quebec province lead to the formation of a minority government. As the result of the elections was not a surprise, the actual impact of this change was already priced in the valuation of Canadian dollar. In fact the analysis of RBC Capital Markets expects a less stringent policy from the new government in face of the Liberal opposition, in an attempt to maintain their minority standing.

The RBC Capital market’s analysis rates C$0.9800 level as the key valuation to watch. As the only corrective change in the USD/CAD dynamic was seen from 0.9843 to 0.9948 (AUG 21- Aug 23), it is apparent that the bearish tones overshadow these bounces. Selling interest will spike at at 0.9908 and 1.0002.

USD vs CAD Source RBC

The forex traders are also more focused on the European Central Bank’s meeting, which is taking place on Thursday, in which a plan to ease the euro debt crisis and policy easing is hoped for. The slowdown in key Asian markets like China is also of concern where the equity markets are slowing and commodity prices are declining.