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USD / CAD Consolidates Above 1.2750 Amid Bearish Risk Appetite

  • USD / CAD has been unable to pull back below the 1.2750 level in recent trading amid continued pessimistic sense of risk appetite.
  • Dovish comments from BoC Lieutenant Governor Beaudry could also be weighing on the loonie on Friday.

The USD / CAD it has been consolidating above 1.2750 in recent trading, although gains have been limited well before the 1.2800 level. On the day, the CAD is trading with losses against the US dollar of around 30 pips or more than 0.2%, amid a deterioration in market appetite for risk given the lack of progress in the Brexit talks and the US fiscal stimulus

Does the moderate discourse of the BoC weigh on the CAD?

Late in Thursday’s session in the United States, Bank of Canada Deputy Governor Beaudry made some moderate remarks; He spoke about how the bank is thinking about another possible rate cut, though not in negative territory, and how the bank could expand its QE program as well. When pressed to comment on the recent appreciation of the Canadian dollar, he noted that the exchange rate is an important consideration for the bank and would be taken into account when the bank compiles its Monetary Policy Report in January.

Talk of easing and the exchange rate didn’t seem to affect the CAD much at the time, but it may have contributed a bit to the weakness seen in the currency during the European morning session on Friday. After all, it would be strange for a member of the BoC’s Monetary Policy Committee to come out and talk randomly about how the bank is thinking of easing if the bank doesn’t switch to a more dovish stance.

What is the motivation for this possible moderate change? While the BoC could point to an increase in Covid-19 cases in Canada, the country’s economic outlook in 2021 (which has improved dramatically since last month’s vaccine news and Joe Biden’s victory in the presidential election of USA) point to a strong case for easing. On the contrary, the bank is likely more concerned about slowing the rate at which the loonie has appreciated in recent weeks.

On the other hand, Canadian data on Friday was not particularly helpful for CAD bulls; Canada’s capacity utilization rate in the third quarter of 2020 increased to 76.5% from 70.7% in the previous quarter, a loss from expectations of a jump to 77.5%.



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