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  • USD/CAD has been unable to move back below the 1.2750 level in recent trade amid a continued downbeat feel to risk appetite.
  • Dovish commentary from BoC Deputy Governor Beaudry might well also be weighing on the loonie on Friday.

USD/CAD has been consolidating above the 1.2750 mark in recent trade, though gains have been capped well before the 1.2800 level. On the day, CAD trades with losses versus the US dollar of around 30 pips or over 0.2%, amid a deterioration in the market’s appetite for risk given the lack of progress in Brexit and US fiscal stimulus talks.

Dovish BoC speak weighs on CAD?

Late in Thursday’s US session, Bank of Canada Deputy Governor Beaudry came out with some dovish comments; he talked about how the bank is thinking about another potential rate cut, though not into negative territory, and how the bank could also expand its QE programme. When pressed to comment on recent appreciation in the Canadian dollar, he noted how the exchange rate is an important consideration for the bank and that it would be taken into account when the bank compiles its Monetary Policy Report in January.

Talk of easing and about the exchange rate did not seem to affect CAD much at the time, but may have contributed somewhat to the weakness seen in the currency during Friday’s European morning session. Afterall, it would be odd for a BoC Monetary Policy Committee Member to come out and just randomly be talking about how the bank is thinking about easing if the bank wasn’t shifting to a more dovish stance.

The motivation for this potential dovish shift? While the BoC could point to rising Covid-19 cases in Canada, the country’s economic outlook in 2021 (which has improved drastically since last month’s vaccine news and Joe Biden US presidential election victory) does point to a strong case for easing. Rather, the bank is likely more concerned about slowing down the rate at which the Canadian dollar has been appreciating over the last few weeks.

Elsewhere, Canadian data on Friday has not been particularly helpful for the CAD bulls; Canada’s Capacity Utilisation Rate in the third quarter of 2020 rose to 76.5% from 70.7% the quarter prior, a miss on expectations for a jump to 77.5%.

Looking ahead for the loonie; next week will be a busy one, with Housing Starts (Nov), Manufacturing Sales (Oct) and BoC Governor Tiff Macklem speaking on Tuesday, Consumer Price Inflation (Nov) numbers on Wednesday and then Retail Sales (Oct) on Friday.