The Canadian dollar has taken a pause on Tuesday from its recent rally. In the North American session, the pair is trading at 1.3015, up 0.06% on the day.
Loonie soars on Biden election
The currency markets showed significant volatility last week, and the big loser was the US dollar, as investors went on a buying spree after the US election. The news that Joe Biden was on his way to a victory boosted the other G-10 currencies, and the Canadian dollar was no exception. USD/CAD fell 1.99% last week, and the pair dropped below the symbolic 1.30 level on Monday. This line had been a reliable support level dating back to October 2018.
This week, there are no Canadian economic releases and Canada’s banks and financial markets will be closed on Wednesday for Remembrance Day. This means that US data will have a magnified effect on the movement of USD/CAD this week. There are no tier-1 events out of the US on Thursday, with the release of unemployment claims and consumer inflation reports. As a result, I expect USD/CAD movement to be muted until at least Thursday.
The Bank of Canada remains in neutral gear, with policymakers committed to keeping interest rates at the ultra-low rate of 0.25% until 2023. Of course, a huge rebound in economic activity could prod the central bank to raise rates, but with Covid-19 continuing to hamper economic growth, no such surge in the economy is likely in the near future. If the economy does not improve, I would expect the bank to announce further easing measures as early as Q1 of 2021, which would be bearish for the Canadian dollar. The bank has one more rate cut left in its ammunition box, which would mean a trim from 0.25% to 0.10%. The BoC is unlikely to move into negative rate mode, so any further easing measures would consist of QE or other unconventional easing methods.
- There is resistance at 1.3069, followed by resistance at 1.3131
- 1.2937 is providing support. The next support line is at 1.2867