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Canadian Dollar Rallies on BoC Rate Decision and Biden Inauguration

January 20, 2021 at 20:21 by Simon Mugo

LooniesThe Canadian dollar today rallied higher against its US peer after the Bank of Canada left interest rates unchanged with a bullish economic outlook. The USD/CAD currency pair fell to new multi-year after Joe Biden’s inauguration marked the end of the Donald Trump era.

The USD/CAD currency pair fell from a high of 1.2732 during the Australian market to a low of 1.2606 following Biden’s inauguration and the BoC decision but was off these lows at the time of writing.

The currency pair’s initial decline was fueled by the elevated investor risk appetite following yesterday’s testimony by Janet Yellen before Congress. The loonie was further boosted by the rising crude oil prices as tracked by the West Texas Intermediate. The release of the disappointing Canadian consumer price index report for December by Statistics Canada had a muted impact on the pair; the country’s CPI rose 0.7% missing analysts estimates of 1%. However, the Bank of Canada’s core CPI print came in at 1.5% beat consensus estimates of 1.2% boosting the loonie.

The currency pair crashed to its daily lows after the BoC released its monetary policy report keeping interest rates at 0.25% as expected. The loonie’s rally was further boosted by the BoC’s upbeat GDP forecasts even as Governor Tiff Macklem refused to comment on whether the bank considered negative rates. The BoC also maintained its bond-buying program at C$4 billion/month saying it was too early to reduce the amount.

The currency pair’s future performance is likely to be affected by tomorrow’s Canadian employment data and US dollar dynamics.

The USD/CAD currency pair was trading at 1.2647 as at 20:20 GMT having dropped from a high of 1.2732. The CAD/JPY currency pair was trading at 81.85 having risen from a low of 81.55.

If you have any questions, comments, or opinions regarding the Canadian Dollar, feel free to post them using the commentary form below.

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