Bank of Canada Rate Cut: A Strategic Move in Uncertain Times |Errante
Market Overview
The Bank of Canada made a significant move by cutting its key interest rate by 25 basis points, bringing it down to 3.00%. This decision marks the sixth consecutive rate cut. showing the Bank’s effort to support the economy while keeping an eye on inflation. Interestingly, the Canadian dollar has remained stable, even with the rate cut, suggesting that the market is reacting in a cautious way & may be awaiting for tariffs.
Fundamental Factors
Despite this positive news, challenges remain. Business investments have not been as strong, although there are expectations for a gradual improvement.However, concerns about potential U.S. tariffs are still a major worry. Governor Tiff Macklem noted that if these tariffs were to be applied, they could cut Canada’s GDP growth by about 2.5% in the first year.
Another key point is the Bank’s decision to end its quantitative tightening program and restart asset purchases in March. This change in strategy aims to stabilize the Bank’s balance sheet and provide more support to the market, although it will be implemented gradually.
Technical Analysis
NZD/USD is preparing for two inside bar setups: the first on the weekly chart and the second on the daily chart. As discussed in our previous analysis, NZD/USD experienced a liquidity grab from the highs above the 200 MA with a bearish order block, breaking below the 50 MA with a gap candle. The downward pressure persisted. Currently, the market is stalling at the order block from January 3, 2025, which acts as support and coincides with the 61% Fibonacci level of the bullish leg. A break of this support may lead the pair to the bullish order block from January 10, 2025.
Conclusion
This recent rate cut reflects the Bank’s careful balance between fostering economic growth and managing inflation risks. While the Bank is open to providing support, Macklem’s remarks suggest they may pause future rate cuts unless significant economic challenges arise.The future will depend largely on how trade relations with the U.S. develop and whether the current recovery trends continue. With inflation risks being carefully watched, the Bank seems ready to adopt a more neutral stance, indicating that upcoming decisions will rely heavily on economic data.This thoughtful approach to monetary policy shows the Bank’s commitment to supporting recovery while being attentive to potential risks, making it a suitable strategy for navigating the uncertain financial environment ahead.
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