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  • USD/CAD continues to trade well within recent ranges either side of the 1.2650 mark.
  • Some market commentators attribute modest CAD underperformance to the lack of any hint towards QE tapering by the BoC.
  • Looking ahead, comments from BoC’s Schembri on Thursday and Canadian jobs data on Friday will be worth watching.

USD/CAD continues to trade well within recent ranges on either side of the 1.2650 mark and not far from the pair’s 21-day moving at almost bang on 1.2650. In fairness, though trade has been mundane and for the most part rangebound, the loonie is a moderate underperform in Wednesday’s G10 FX ranking table, with the loonie down 0.1% versus the US dollar. Some market commentators attribute this very modest underperformance to the lack of any hint towards QE tapering by the BoC in Wednesday’s monetary policy statement.

Looking ahead, two stand-out risk events in the final two trading days of the week are worth noting; BoC Deputy Governor Lawrence Schembri will be speaking at 18:30GMT on Thursday, where he will likely give colour on Wednesday’s monetary policy decision. StatsCan will then release the latest Labour Market report for the month of February at 13:30GMT on Friday; markets expect that the Canadian economy added 75K jobs on the month, enough to bring the unemployment rate back down to 9.2% from 9.4% in January.

Bank of Canada Monetary Policy Decision Recap

As expected, the Bank of Canada left its monetary policy settings unchanged, with rates left at 0.25% and the rate of asset purchases maintained a minimum of CAD 4B per week. The bank’s take on the economy was a little more upbeat, with the bank stating that the economy is “proving to be more resilient than anticipated to the second wave of the virus”. Thus, the bank is now forecasting modestly positive growth in Q1 2021 rather than a contraction. Meanwhile, the bank also noted that “improving foreign demand and higher commodity prices have brightened the prospects for exports and business investment”.

Despite the more upbeat take on the economy, the BoC cautioned that there is “still considerable economic slack”. Hence, there was no talk of QE tapering in Wednesday’s statement, as some analysts had been calling for – this seems to have weighed moderately on the loonie. On QE, the bank reiterated that it will adjust the pace of purchases as it “gains confidence in the strength of the recovery”. Some commentators are now suggesting that this will occur as soon as April; Capital Economics thinks “such a move is likely at one of the next few meetings, due to the Bank’s concerns about owning too high a share of the outstanding bonds”.

Elsewhere, the bank did not make any attempts to jawbone Canadian government bond yields any lower, instead remarking that “global yield curves have steepened, largely reflecting the improved US growth outlook, but global financial conditions remain highly accommodative”. The BoC’s more handoff approach to recent bond market moves may set the loonie up to outperform the currencies of countries where a more hands-on approach is being taken to prevent yields from rising (like the ECB, BoJ and RBA).