USD/CAD Rises on Unchanged Policy

The Bank of Canada left the interest rate unchanged and more importantly – left the forecast unchanged. Without an upcoming rate hike, the Canadian dollar loses ground to the greenback.

Mark Carney likes clear messages. In the headline provided with the rate statement he “reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010”. This unchanged policy comes on top of improving conditions, and is a disappointment.

USD/CAD rose from 1.03 to 1.0340 after the decision, but still remains in the range mentioned in the Canadian dollar forecast.

After stronger inflation numbers and improving employment conditions, Carney probably wanted to cool down the Canadian dollar. The strength of the loonie weighs on the Canadian dollar, by not announcing a shift in policy.

Is preparing a surprise rate hike? Probably not. His policy is rather transparent and clear. This stands out as Bernanke usually offers confused messages.

USD/CAD is still in the 1.02-1.04 range. Another thing that pushes the greenback higher is American TIC Long-Term Purchases which posted a huge surprise: 126.8 billion, compared to about 30 billion.

Earlier this week, Canadian Foreign Securities Purchases showed a rise to 10.5 billion, almost double the early expectations to remain stable. This good figure shows that foreigners put their trust in Canada’s economy. USD/CAD went lower and stopped at 1.0250.

Hours before the rate decision, USD/CAD went back up, as the dollar made gains across the board. This upwards move eased as also the Canadian Leading Index surprised with a strong rise of 1.5%, more than this 1.1% that was predicted. This came 30 minutes before the rate decision.

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