Canadian Dollar Strengthens After Central Bank Announcement

Canadian Dollar Strengthens After Central Bank Announcement

Central Bank’s Move to Lower Asset Purchases and Impact on the Currency

On Wednesday, the Bank of Canada announced it would reduce its weekly asset purchases, reflecting confidence in the economy’s improving recovery. Previously committed to spending C$4 billion weekly, the Bank will cut this to C$3 billion starting next week.

The nominal interest rate remains steady at 0.25%, but the Bank signaled it might raise rates sooner than expected due to the positive economic outlook. Inflation is projected to return to 2% by late 2022, and the Bank has revised its 2021 economic growth forecast upward to 6.5%, up from the previous 4.0%.

Impact on the Forex Market

USD/CAD

Following the announcement, the USD/CAD pair saw a decline of 1.05% within the first four hours. Although bearish sentiment initially dominated, the market has begun correcting, with bulls working to reverse the drop. As of now, USD/CAD is trading at 1.24982.

EUR/CAD

The EUR/CAD pair experienced a similar reaction, with the CAD weakening by 1.02% initially before beginning to recover. However, the pair faces resistance at the 1.504 level, which may act as a ceiling for further gains, potentially slowing the correction.

The Canadian Dollar’s strengthening in response to the central bank’s actions reflects market confidence in the nation’s improving economic outlook and policy adjustments.