BOC: Out With The Old In With The New

<h2>Tiff Takes Over</h2>
<p>Tiff Macklem took the reigns as the new governor of the Bank of Canada this week and given current global and domestic conditions, he is unlikely to be envied much by any of his peers. The two-year US/China trade war and now the COVID-19 crisis, have left the global economy in a very fragile place as Macklem begins his seven-year term.</p>
<p>In Canada, the unemployment rate has soared to 13%, close to record highs, as the lockdowns saw over 2 million jobs lost in April, adding to the 1 million jobs lost in March. The crash in crude oil prices this year has decimated the country’s main export industry leading to vast production cuts while global trade as a whole, has also fallen sharply over the course of the crisis. Canada is now facing its deepest recession in several decades as Macklem takes over.</p>
<h2>Worst Of The Crisis Has Passed</h2>
<p>At this week’s meeting, Macklem and outgoing BOC governor Poloz released a joint statement expressing optimism in the worst of the crisis having now passed and putting focus on the recovery. The statement noted “As market function improves and containment restrictions ease, the bank’s focus will shift to supporting the resumption of growth in output and employment.”  The statement went on to reaffirm the bank’s commitment to tailoring policy to the needs of the recovery, saying: “The bank maintains its commitment to continue large-scale asset purchases until the economic recovery is well underway. Any further policy actions would be calibrated to provide the necessary degree of monetary policy accommodation required to achieve the inflation target.”</p>
<h2>Uncertainty Remains</h2>
<p>Policy was held steady with rates at record lows of 0.25% and no further changes made to the bank’s recently announced QE program. Poloz seemed intent to leave on an optimistic note though did note the continued uncertainty in the BOC’s outlook, saying: “While the outlook for the second half of 2020 and beyond remains heavily clouded, the bank expects the economy to resume growth in the third quarter.”</p>
<p>For Macklem, the key now will be the pace of the post-lockdown recovery. There is still a great deal of uncertainty in how long it will take the economy, both domestic and global, to recover to pre-virus levels and of course, the pandemic is not over yet and there are still risks of a further outbreak of the virus which could cause even more problems later this year. For now, though, the BOC is keen to keep their eyes fixed firmly on the recovery and with “Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery.”</p>
<h2>Technical Views</h2>
<p><strong>CADJPY (Bullish above 78.99)</strong></p>
<p>From a technical viewpoint. The rally in CADJPY has seen price breaking back above the yearly S1 and structural resistance at the 78.99 level. With VWAP having turned positive now, while this level acts as a base, bulls’ next objective will be a test of the 81.59 – 82.18 zone where we have structural resistance and the yearly pivot, ahead of the longer term bearish trend line.</p>
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