Home Daily Commentaries CAD steady after Bank of Canada holds key interest rate

CAD steady after Bank of Canada holds key interest rate

Daily Currency Update

CAD - Canadian DollarThe Canadian dollar held firm against the dollar after the Bank of Canada announced it is holding its key interest rate at 0.25%, as expected. USDCAD was down 0.32%, trading at 1.2071 at the time of writing. The rate has been on hold at a record low since the start of the pandemic last year. While the central bank said it won’t increase the rate until the economy has fully recovered, policymakers also expect a quick rebound starting this summer as the pace of vaccinations have picked up quickly over the past month. The Bank of Canada became the first among G10 banks to indicate that it could start raising interest rates in 2022. The move has boosted demand for CAD in the last two months. The currency was up 5.47% year-to-date.

Key Movers

The euro shuffled higher against the dollar ahead of tomorrow’s European Central Bank (ECB) meeting. EURUSD was up 0.35%, climbing over the 1.22 handle to trade at 1.22147 at the time of writing. ECB policymakers are expected to keep rates steady tomorrow, so the focus is on whether the central bank will signal an upcoming slowdown to its bond-buying program and any comments around inflation. The ECB, like the US Federal Reserve, has maintained that near-term inflationary pressures are transitory, and any comments deviating from this stance in tomorrow’s press conference could lift the euro. The pound has remained firmly trapped in a tight range over the first two days of the week, barely deviating against both the euro and US dollar. GBPUSD, often seen as a barometer of confidence in the UK, has barely wobbled since the start of the week. However, investors’ eyes are fixed firmly on COVID-19 variant cases and any reports as to whether the UK will officially end lockdown on June 21. GBPUSD was up 0.6%, trading at 1.4158 at the time of writing. The AUD and NZD both tracked slightly higher against USD this morning, after a small correction across commodity currencies on Tuesday. A possible explanation for yesterday’s dip could be sustained inflation fears ahead of the US CPI report. Rising commodity prices have played a part in accelerating an increase in input costs, which has spilled over to consumer prices. A higher than expected inflation reading tomorrow could dampen demand for the AUD.The US dollar moved lower against a basket of currencies ahead of tomorrow’s much-anticipated inflation data. The US Dollar Index was down 0.22%, trading at 89.88 at the time of writing. April’s inflation print of 4.2% was the highest since 2008. Economists expect May’s reading to increase to 4.6%. If the number is higher tomorrow, some analysts see this as a reason for the US Federal Reserve to discuss the possibility of tightening monetary policy sooner than later — which could prove to be a boost for USD.

Expected Ranges

  • EUR/CAD: 1.472 - 1.475 ▼
  • GBP/CAD: 1.705 - 1.716 ▼
  • AUD/CAD: 0.934 - 0.937 ▼
  • USD/CAD: 1.206 - 1.211 ▼