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.
- 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
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