The Canadian dollar is drifting in the Wednesday session. Currently, USD/CAD is trading at 1.2680, down 0.08% on the day.
It has been a rough week for the Canadian dollar, as USD/CAD has gained 1.2% and briefly pushed across the 1.27 line on Wednesday, after the Bank of Canada policy meeting.
BOC maintains rates
Caution is the buzzword in the financial markets, and the Bank of Canada joined the fray at its policy meeting. Earlier in the year, the Bank was quite aggressive, tapering its weekly bond purchases from CAD 5 billion to CAD 2 billion. The Bank had forecast that it would raise interest rates in the second half of 2022, when inflation was expected to rise to the 2% level. However, the BoC is now treading with caution, and maintained monetary policy at the meeting on Wednesday. The bank kept interest rates at 0.25% and bond purchases at CAD 2 billion. The message to the markets was dovish, with policy makers warning that a fourth wave of Covid-19 and continuing supply-chain issues could hurt the recovery. Still, the Bank said that it expected the economy to improve in the second half of 2021.
In addition to Covid concerns, the BoC stayed away from away monetary moves for two reasons. First, the economy contracted by 0.3% in the second quarter, the first quarterly decline since the summer of 2020. As well, Canada is holding a federal election on September 20, and the BoC wished to observe strict impartiality and not make any changes to monetary policy just prior to the election. The BoC noted that inflation remains above 3%, but said that it believes that the rise is transitory and it expects inflation to ease.
The BoC’s cautious stance was not helpful for the Canadian dollar, as USD/CAD rose on Wednesday as high as 1.2762, hitting a two-week high.
- USD/CAD is testing resistance at 1.2719. Above, there is resistance at 1.2785
- There is support at 1.2465 and 1.2399
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