The US dollar is basically flat against the Canadian dollar on Friday morning with the exchange rate entering a period of calm following a wild ride in the past twenty-four hours brought about by comments made by the Bank of Canada. More broadly, risk sentiment has returned to markets after the World Health Organisation said the coronavirus outbreak in China was not an internal emergency.

USD/CAD was lower by 2 pips (-0.01%) to 1.3123 with a daily range of 1.312 to 1.313 as of 9.30am GMT with the currency pair just down from year-to-date highs.

The Loonie

The Loonie had plunged on Thursday in response to signs the Bank of Canada is preparing to cut Canadian interest rates. For now, the effect of the central bank’s new stance toward monetary policy seems to be priced into the exchange rate between the US dollar and the Canadian dollar.

The Bank of Canada governor Stephen Poloz made it very clear what the central bank thinks at the Bank of Canada meeting press conference. The most important of his comments being that “The door is obviously open to an interest rate cut.” And that “Calculations on a possible rate cut would depend on data.”

This was quite the shift because in remarks just two weeks earlier, Poloz had suggested that interest rates were at the right level in Canada. The dovish shift caught markets a little by surprise. The result was that the new tone from the governor sent the CAD significantly lower.

It would appear the recent GDP data, released after the governor made his last comments has shifted opinion at Canada’s central bank. Of course, the bank did not actually cut interest rates this time but is watching the incoming data to determine when they should do so. That makes the release of November retail sales figures more important today. Retail sales are expected to rise 0.4% month-over-month in November after a -1.2% contraction in October.

The US dollar

It’s been a slow week on the economic data front from the United States. Today sees the release of some of the more forward-looking data to give an insight on the state of the US economy. Preliminary PMIs from Markit are released at 14.45 GMT.

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