USD/CAD steady as BoC leaves rates unchanged; boosts asset purchases

The USD/CAD pair roseafter the Bank of Canada (BOC) concluded its two-day monetary policy meeting. The bank left interest rates unchanged at 0.25%, and increased its asset purchases. The Canadian dollar also eased because of the falling oil prices.

Bank of Canada decision

The Canadian economy is facing its biggest declines since the great depression because of the current coronavirus pandemic and low oil prices. This has seen its unemployment rate surge to 7.8 per cent. In March, more than one million Canadians lost their jobs, while more than 5 million have applied for unemployment benefits.

The manufacturing sector has been decimated, with the recent PMI falling by half to 26.0. Meanwhile, the troubles in the housing sector could continue. In January, housing starts declined to 192,000 from the previous 210,000 while building permits declined by 7.3 per cent. As a result, the USD/CAD pair has risen by more than 8 per cent this year.

The Bank of Canada has responded to the crisis swiftly. It has brought interest rates at their lowest level in more than a decade and injected more than $110 billion into the financial system through quantitative easing.

In today’s monetary policy statement, the bank announced that it was setting up a new temporary Provincial Bond Purchase program of up to C$50 billion. This program will supplement the existing provincial money market purchase program.

The bank also announced a new program to acquire up to C$10 billion worth of investment grade corporate bonds. Further, the bank said that it would enhance the terms of repo funding to up to two years. In the statement, Governor Stephen Poloz said:

“These measures will work in combination to ease pressure on Canadian borrowers. As containment restrictions are eased and economic activity resumes, fiscal and monetary policy actions will help underpin confidence and stimulate spending by consumers and businesses to restore growth. The Bank’s Governing Council stands ready to adjust the scale or duration of its programs if necessary.”

Canada hurt by the coronavirus pandemic

The coronavirus pandemic has affected Canada significantly. More than 27k people have been infected by the disease, according to data compiled by Worldometer. Almost a thousand of them have lost their lives.

The numbers will likely get worse, according to the country’s health officials. In a recent statement, officials said that the death toll could rise to as high as 22,000 people even as the current lockdown continues.

In a statement yesterday, Justin Trudeau said that the current lockdown would continue for weeks. This will worsen the current state of the economy since many companies have been not operating. It will also lead more people to file for unemployment benefits. In a statement, he said:

“I know people are interested in when things will go back to normal. The reality is, it’s going to be weeks still. It is going to be important to get our economy going – but we’re going to have to remain vigilant until such time as a vaccine is found.”

The lockdown will also likely force the Canadian government to increase its stimulus package. Last month, the government passed a stimulus package worth about $75 billion to cushion the economy from the crisis. Most of these funds are helping companies keep staff in their payrolls.

Canada has also been affected by oil prices, which have dropped by 50 per cent this year. The situation worsened today after France-based IEA warned that demand will slide to an unprecedented level this year. In addition, the market reacted to the infighting among US oil producers about whether to cut oil production. Some big US producers like Exxon and Chevron have questioned the efficacy of cuts. This, together with Mexico’s reluctance to cut production risks damaging the deal.

USD/CAD technical outlook

On the four-hour chart, the USD/CAD pair found some support around the 50 per cent Fibonacci Retracement level. Today, the pair rose and passed the important resistance level shown in pink below.  As a result, it is trading along the 61.8 per cent retracement. The pair may continue rallying now that it has exited the descending triangle pattern.