The US dollar is higher against the Canadian dollar on Thursday after the Bank of Canada lowered interest rates by half-a-percentage point at its scheduled meeting yesterday, matching the emergency rate cut conducted by the Federal Reserve.
USD/CAD was up by 18 pips (+0.12%) to 1.3403 with a daily range of 1.3381 to 1.3412 as of 9.30am GMT.
USD/CAD finished yesterday completely flat, closing right where it opened and the performance on the week is the same, with a return of just +0.01%.
CAD – BoC decision to cut interest rates by 50 basis points was a surprise
The decision from the Bank of Canada to cut interest rates by 50 basis points in one meeting was a slight surprise, but markets had been expecting it would happen over the next two meetings anyway.
The decision leaves the BoC perfectly matching the Federal Reserve both in the size of the recent cut and the level of interest rates at 1.25%. Some economists are arguing that the ‘shock and awe’ tactic from the central banks won’t work, but so far it has served to stabilise stock markets. On Wednesday the Dow Jones rose 1100 points and the TSX in Canada posted its own triple-digit advance.
The limited reaction in the Canadian dollar to the major action from the country’s central bank can be best explained by the fact that the currency has already seen sizeable declines this year and because of the OPEC decision. Oil prices are flat on Thursday awaiting a decision from the Organisation of Petroleum Producing Countries (OPEC) and its partners in Vienna. Should no decision be reached, or markets don’t think the output reduction will be enough to counter the drop in demand due to the coronavirus, oil prices stand to drop substantially. However, if the group is bold, oil prices may have already reached a bottom.
The US dollar
Optimism in US markets looks a little more subdued on Thursday after California raised a state of emergency, while Congress has approved $8bn in funding to the fight coronavirus.
