Canadian dollar jumps as BoC stands pat

The Canadian dollar has posted strong gains in the Wednesday session. Currently, USD/CAD is trading at 1.2642, down 0.72% on the day.

Bank of Canada holds rates, express optimism

On a day where most of the talk was on the presidential inauguration in Washington, the Canadian dollar reacted with strong gains to events north of the border. To be more precise, it was a non-event as the Bank of Canada held interest rates at 0.25 per cent, where they have been pegged since March. The move was widely expected, which put the bank’s rate statement under the market magnifying glass. Investors clearly liked what they heard from BoC Governor Tiff Macklem, although at first glance the rate statement sounded anything but positive. The statement said that the economy would require “extraordinary monetary policy support” due to weak near-term growth and the slow pace of recovery and that it did not expect inflation to reach the 2 per cent target before 2023. Hardly an encouraging message from BoC policymakers.

Given this bleak message, what then was the impetus for the loonie showing sharp gains? Let’s start with the fact that it’s no secret that the Canadian economy is limping along, so there was nothing in the rate statement that startled the markets. As well, there was speculation that the Macklem might hint at plans for a mini-rate cut, which would shave rates to 0.10 percent. When this didn’t happen, investors reacted positively. Finally, despite the pessimistic message presented in the rate statement, the bank’s monetary policy report lauded the faster-than-expected vaccine rollout and revised its longer-term outlook for the Canadian economy. This was some good news that investors could hang their hats on, with the result that the Canadian dollar is enjoying one of its best days of 2021.

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USD/CAD Technical

  • USD/CAD is putting pressure on support at 1.2632. Below, there is support at 1.2523
  • The first line of resistance is at 1.2842. Close by, we have the 50-day MA line at .12860. Above, there is resistance at 1.2943

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.
Kenny Fisher

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