Bank of Canada Cuts Rates Again, USD/CAD Hits 4-Year High

Bank of Canada (BoC) slashed its benchmark interest rate by 50bps from 1.25% to 0.75% for the second time in 10 days as the central banks worldwide continue to ease amid the coronavirus outbreak.

Fundamental analysis: New measures introduced

In addition to a rate cut, the Bank introduced a $10 billion credit facility program that will be available to businesses to help business activity. This facility program was designed jointly by the BoC and the Government, with hints of a bigger package in the pipeline for the next week.

Less than 10 days ago, the BoC announced a first rate cut from 1.25% to 0.75%. With today’s cut, the central bank has now slashed its main rate by 100 bps. In normal circumstances, the bank takes years to prepare the ground for such a big cut.

The BoC has now joined the U.S. Federal Reserves, which also cut interest rates by 50 bps last week, a move which may be repeated in the next meeting scheduled for next week.

Technical analysis: New 4-year high

USD/CAD has gained nearly 3% last week on the increased greenback demand, as well as the worsening risk appetite. The pair was 5 pips shy from touching the $1.40 mark for the first time since February 2016.

As a commodity currency, the Canadian dollar is strongly correlated to crude oil prices. Given that the oil prices trade at multi-year lows, the CAD followed. Although there was a pullback in the USD/CAD price today, it was still a very positive week for the pair.

Moreover, a strong bounce in stocks has also helped the CAD to bounce back today. As a result, we may see a retest of the previous resistance, now support, below the $1.37 mark next week. On the upside, the $1.40 remains the main target for the bulls.

Summary

Bank of Canada (BoC) made another emergency cut by 50 basis points to its key interest rate today in a bid to help the struggling economy amid the coronavirus outbreak. In the meantime, the USD/CAD hit a new 4-year high near the $1.40 mark.