USDCAD - Bank of Canada keeps interest rates unchanged!The USDCAD pair is below the EMA200 and EMA50 on the 4-hour timeframe and is in its descending channel. The continuation of the downward movement of this pair will provide us with a buying position with a good risk-reward ratio. If the correction continues, we can sell within the specified supply zone.
On Wednesday, oil prices climbed by approximately 1%, driven by renewed optimism in the markets regarding potential trade talks between the United States and China. However, lingering concerns about the trade war’s negative effects on global energy demand limited further gains in oil prices.Initially, oil prices declined, but market sentiment shifted after Bloomberg reported—citing an anonymous source—that China was seeking greater respect from the Trump administration before agreeing to new negotiations. The same source also stated that China had requested a new outreach from the U.S. to initiate the discussions.
Giovanni Staunovo, an analyst at UBS, commented that easing trade tensions between the two nations could help reduce constraints on economic growth and energy demand, potentially exerting downward pressure on oil prices.
Meanwhile, the International Energy Agency (IEA) reported that global oil demand is expected to rise by just 730,000 barrels per day this year—well below both its previous projections and those of OPEC.
In a new report, the Fitch rating agency warned that the intensifying global trade war has significantly weakened the outlook for economic growth. According to the report, China’s economic growth will fall below 4% in both this year and the next, while the eurozone is projected to grow by less than 1%.
Fitch further estimates that global economic growth in 2025 will fall below 2%, marking the weakest performance since 2009 (excluding the COVID-19 pandemic period).
Despite the sharp decline in the U.S. growth outlook, Fitch expects the Federal Reserve to delay any interest rate cuts until Q4 of 2025. Conversely, deeper rate cuts are anticipated for the European Central Bank and emerging market economies.
In the energy sector, Fitch lowered its short-term oil price forecast due to risks stemming from weaker demand and trade disruptions but left its natural gas price forecast unchanged.
Additionally, the Bank of Canada maintained its policy rate at 2.75%. Highlights from the Bank’s monetary statement include:
• Tariffs and logistical challenges are driving price increases.
• New U.S. trade policies have heightened uncertainty, slowed growth, and sparked inflation fears.
• The Bank supports economic growth with inflation control but urges caution due to elevated domestic risks.
• Both upside risks (higher costs) and downside risks (weaker growth) to inflation are under close watch.
• Beginning in April, the removal of carbon taxes and cheaper oil are expected to temporarily lower inflation for about a year.
• The recent rise in inflation reflects renewed commodity price growth and the end of temporary sales tax relief.
• Due to high uncertainty related to U.S. trade tariffs, the Bank is refraining from issuing an economic forecast.
• The output gap in Q1 2025 was estimated between 0% and -1%.
• Annualized GDP growth for the same quarter was 1.8%, down from the January forecast of 2%.
• Two scenarios are under consideration: one involving tariff reduction via agreement, and another involving a prolonged global trade war.
• In the first scenario, Canadian and global growth temporarily decline, inflation drops to 1.5%, and later returns to the 2% target.
• In the second, the global economy slows sharply, inflation surges, and Canada enters a severe recession. Inflation surpasses 3% by mid-2026 before returning to the 2% target.
• In both scenarios, the neutral interest rate is estimated to be around the midpoint of the 2.25%–3.25% range.
