Canadian Dollar Slides As BoC Leaves Rates Unchanged, Crude Oil Crashes

The Canadian dollar is sliding against its US peer on Wednesday as the Bank of Canada (BoC) left interest rates unchanged during its November policy meeting. The loonie was also falling on plummeting crude oil prices amid escalating COVID-19 cases around the world that traders bet would continue to weigh on global demand. With Canada witnessing a second wave of the highly infectious respiratory illness, will the economic recovery and the loonie’s stabilization come into jeopardy?

BoC officials kept rates at 0.25% for the eighth consecutive month, signaling that it is prepared to cushion the blow from the coronavirus pandemic for as long as it takes. BoC Governor Tiff Macklem has indicated in the past that the central bank would not pull the trigger on a rate hike for a few more years, suggesting that the road to recovery will be a long and slow one.
Policymakers modified its quantitative easing program, reducing its large-scale asset buying from $5 billion to $4 billion per week.

As the economy recuperates, it will continue to require extraordinary monetary policy support. The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In our current projection, this does not happen until into 2023. The Bank is continuing its QE program and recalibrating it as described above. The program will continue until the recovery is well underway. We are committed to providing the monetary policy stimulus needed to support the recovery and achieve the inflation objective.

The BoC anticipated price inflation would stay below the BoC’s target range of 1% to 3% until early next year, mainly because of lower energy prices.
Meanwhile, a new survey finds that fewer Canadians are optimistic about the country’s economic prospects. The Bloomberg Nanos Canadian Confidence discovered that only 12.9% of respondents think the economy will strengthen over the next six months, the lowest reading since May. The index slipped to 51.8, which marked the fourth straight weekly decline.
Energy commodities were cratering midweek, driven mostly by concerns over demand amid a resurgence in coronavirus cases. December West Texas Intermediate (WTI) crude oil futures plunged $2.15, or 5.43%, to $37.42 per barrel. November natural gas futures edged up by $0.015, or 0.5%, to $3.033 per million British thermal units.
Since Canada maintains a current account deficit, the nation relies on exports to grow the country’s economy. Oil and gas remain Canada’s top exports, so any significant change in prices — high or low — can affect both the economy and the loonie.
The bond market was mostly in the red on Wednesday, with the benchmark 10-year bond dipping 0.015% to 0.582%. The three-year note slipped 0.006% to 0.251%, while the 30-year bond dropped 0.01% to 1.173%.
Another contributing factor to the loonie’s slump was a weaker greenback. With the broader financial markets crashing in the middle of the trading week, investors are pouring into the US dollar, a traditional safe-haven asset.
The USD/CAD currency pair advanced 0.81% to 1.3294, from an opening of 1.3186, at 14:05 GMT on Wednesday. The EUR/CAD rose 0.19% to 1.5582, from an opening of 1.5554.
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