The US dollar is lower against the Canadian dollar on Wednesday following an emergency half-a-percent rate cut from the US Federal Reserve ahead of a decision from the Bank of Canada on Canadian interest rates later today.
USD/CAD was down by 30 pips (-0.22%) to 1.3356 with a daily range of 1.3342 to 1.3388 as of 9.30am GMT.
USD/CAD rallied +0.4% on Tuesday but fell short at Monday’s peak around 1.338. Weekly returns for the exchange rate stand at -0.35%.
The Canadian dollar
Two meetings are driving the action in the Canadian dollar today – the Bank of Canada meeting later and the 2-day OPEC meeting which started today and finishes tomorrow.
Following the G7 teleconference call that pledged unspecified coordinated action and the shock decision by the US Federal Reserve to carry out an emergency rate cut, it now seems very likely the Bank of Canada will lower interest rates today. The Canadian central bank had opened the door to a rate cut at its last meeting. The uncertainties created by the coronavirus for the Canadian economy would suggest it will decide now is the right time to lower rates by 25 basis points.
In a similar vein to the market reaction to the cut in Australian interest rates yesterday, the Canadian dollar is moving higher before the decision at 15:00 GMT. Markets have long been pricing in this rate cut with a substantial drop in the Loonie this year. The tone of the statement and from Governor Poloz about the prospect for additional moves will be what drives any future direction in the Loonie.
The US dollar
The surprising decision at 10am New York time yesterday by the FOMC to lower the US Fed funds rate by 50 basis points saw a mixed reaction in markets. Markets had been predicting the Fed would lower interest rates after Jerome Powell’s unusual press release last week that the central bank would take the necessary steps to combat the coronavirus. But not many were expecting its so soon and so the dollar dropped but a sense of panic about the decision also saw shares on Wall Street turn lower too.
