USD/CAD Rallies to Two-Week High on Bank of Canada Announcement
- USD/CAD pushes to a two-week high but momentum fades and the pair retreats
- Calm trading environment on Thursday as currency traders expect an update from the ECB
USD/CAD Rally is Brief
The USD/CAD spiked to a two-week high at 1.2761 on Wednesday following a press conference by the Canadian central bank, the Bank of Canada.
The Canadian dollar declined in value after the Bank of Canada announced it will maintain interest rates unchanged at 0.25% in order to stimulate the economy despite looming inflation fears.
The BoC also decided to leave its monetary policy unchanged and to continue its quantitative easing (QE) program by buying bonds at a pace of C$ 2bn on a weekly basis.
On the topic of surging prices, central bankers expected inflation to ease as the economy expanded. While the current rate of consumer price inflation is above 3% on an annualized basis, the Canadian central bank projects inflation will come down to about 2% in mid-2022.
The continued monetary support and ultra-low borrowing conditions weighed on the Canadian dollar as traders were closely monitoring the event.
The USD/CAD pair advanced nearly 150 pips, or about 1% shortly after the news. Buying momentum, however, faded relatively quickly and the exchange rate was soon back near unchanged levels for the day.
By the end of Wednesday’s market session, the USD/CAD gained about 40 pips, or roughly 0.3%, to finish the session at 1.2675.
A Bumpy Market
On the technical front, the USD/CAD pair logged its third straight day in green territory yesterday. On Tuesday, it climbed above the 200-day moving average after having dived below it a couple of days earlier.
The USD/CAD has been in a bumpy upside move since June 1 when the pair traded at a six-year low near 1.20. Over the period of about three months, the USD/CAD exchange rate has climbed about 670 pips or 5.5% to the current market price.
The currency market on Thursday is relatively quiet as traders expect to hear the latest news from the European Central Bank. The ECB is set to announce its interest rate decision and to provide updates regarding its monetary policy. Heightened volatility could be expected at the time of the event.
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