BOC unlikely to cut rates anytime soon

"It does sound like the BOC is pretty comfortable for now at 0.75 percent" - BMO Capital Markets

The Bank of Canada kept its overnight rate unchanged at 0.75 percent as expected, it announced on Wednesday. In an unexpected move, the central bank cut the overnight rate by 25 basis points in January.

"It suggests steady for now, maybe forever. It all depends on how the data unfolds from here. The Bank of Canada's got fairly bearish growth forecasts for the first half of the year, and we don't have a clear line of sight on whether that's right or wrong so steady for now", said Craig Wright, Chief Economist, Royal Bank of Canada.

In its statement, the BOC said that even though total CPI has fallen owing to falling oil prices, core inflation remains close to 2 percent boosted by lower Canadian dollar. Moreover, it said that economic growth was consistent with the bank's expectations in the final quarter of 2014.

The BOC kept its economic growth forecast unchanged at 1.5 percent for the first half of 2015. Economists say that whether the bank will lower the rates further or not will depend on inflation and growth numbers.

"However, it likely would require a serious downside surprise in growth and/or inflation in the next three to four months, or a renewed dive in oil prices, to prompt the bank to cut again," said Doug Porter, Chief Economist, BMO Capital Markets. "Put plainly, the chances of another rate cut now look markedly lower on the bank's fine-tuned message."

The Canadian dollar reacted positively to the news, as USD/CAD ended the North American session at 1.2416 on Wednesday, lower than Tuesday's finish of 1.2490. On the topside, the immediate resistance is seen at 1.2593 (10-DMA) levels, and above which the pair could be pushed towards 1.2541 (March 4 High) levels. On the flipside, pair is likely to get support at 1.2400 levels, and then at 1.2383 levels.

"USD/CAD eases on the short-term charts, should test key support in the upper 1.23 area shortly", analysts at TD Securities said in a note.