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  • USD/CAD is back at the 1.2800 level following choppy recent trade.
  • The BoC held interest rates as expected, while CAD has been weighed by a fall in crude oil prices post EIA inventory data.

USD/CAD has been choppy in recent trade, dropping to just above weekly lows in the 1.2760s in the immediate aftermath of the Bank of Canada’s interest rate decision, before reversing back above the 1.2800 level amid weakness in crude oil prices and a pick-up in the US dollar. On the day, however, the pair still trades with losses of around 0.1% or 10 pips. 

BoC takes the patient approach

The Bank of Canada held rates at 0.25% and reiterated intentions to keep interest rates at these low levels until at least 2023 as expected on Wednesday, while it held the pace of monthly asset purchases at C$4B as expected and reiterating intentions to continue these purchases until the recovery is well underway.

CAD’s slightly positive initial reaction to the rate decision might have been to the upbeat tone to commentary on the economy and its outlook; the BoC said that while the rebound in the global and Canadian economies since the release of its latest batch of forecasts in October has been in line with expectations, vaccine news is providing some light at the end of the tunnel regarding the pandemic and economic momentum heading into the fourth quarter appears to be stronger than expected back in October.

CAD’s reaction was short-lived, however, given that it is hardly surprising to see the bank acknowledge that events since October (such as Covid-19 vaccine success and Joe Biden’s election victory) have improved the global outlook. “Overall, we think vaccine news provides more than enough light at the end of the tunnel for the BoC to look through any modest growth disappointments stemming from the second wave” said RBC’s Josh Nye.

Crude oil prices slump following huge EIA inventory build

Crude oil prices took a hit in wake of a much larger than expected headline build in EIA crude oil inventory data. Crude stocks rose 15.189M barrels last week versus expectations for a drop of 1.424M. Gasoline and Distillate stocks also posted much larger than expected builds of 5.222M (exp. 1.414M) and 4.222M (exp. 2.271M) respectively, while US production was steady at 11.1M barrels per day.

Prior to the data, WTI was trading in the green on the day just above the $46.00 level, but in subsequent minutes, slid as low as the $45.00 level. As things stand, WTI now trades closer to $45.50 and is only down around 20 cents or 0.3% on the day, though this has still acted as a drag for USD/CAD.

USD/CAD flirts with 1.2800 but remains within recent ranges

USD/CAD may have moved back up to the 1.2800 level, but the pair remains well within recent ranges. To the downside, the price action is being supported in the 1.2760s and to the upside, the action is being capped around the 1.2820s.