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The Canadian dollar weakened sharply yesterday as it was hit by double whammy from lower oil prices and further BoC monetary easing. It helped to lift USD/CAD back above the 1.4100-level, economists at MUFG Bank brief.

Key quotes

“Governor Poloz attempted to draw a line between their asset purchases and so-called quantitative easing. Overall, it would suggest that the BoC is not seriously considering increasing the pace of federal government bond purchases. Nevertheless, the scale of the negative economic shock will keep the BoC under pressure to deliver further support measures.”

“The BoC did reveal that their analysis of alternative scenarios sees activity down 1-3% in Q1 and 15-30% lower in Q2 compared to the end of last year. In these circumstances, we maintain our bearish outlook for the Canadian dollar in the near-term.”

“USD/CAD is likely to rise back towards the 1.4500-level.”