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Summary
- The Canadian dollar rose to its early 2018 level, led by its weaker U.S. rival (USD).
- The Bank of Canada took a neutral stance, kept the interest rate unchanged at 0.25 per cent.
- The central bank Governor Tiff Macklem cautioned against the stronger loonie that could hurt the competitiveness of Canadian goods and services.
The Canadian dollar (CAD) jumped to a three-year high level vis-à-vis U.S. dollar (USD) on Wednesday, January 20, after the Bank of Canada took a stance against slashing interest rates. The loonie soared as much as 0.84 per cent to 0.7915 versus the greenback.
In the wake of the COVID-19 vaccine drive and robust overseas demand, the bank of Canada sees a medium-term improvement in the Canadian economic outlook. Consequently, the central bank kept its principal overnight interest rate at 0.25 per cent in its latest monetary policy.
Canadian 10-year bond yields also rose 0.031 per cent to o.833 per cent on Wednesday, on the back of a positive medium-term economic outlook.
Stronger CAD Not Good For Canada: BoC Chief
The Central Bank Governor, Tiff Macklem, stated that an appreciated loonie has re-surfaced as a threat to its outlook for inflation. The monetary regulator cautioned that the recent surge in Candian Dollar could undermine the demand for local goods and services.
This rise is primarily due to depreciated value of rival US Dollar, explained the Bank of Canada.
Meanwhile, the Canadian dollar continued its gaining spree. At 8:26 AM ET, Thursday, the loonie was up 0.18 per cent to 0.7929 against USD.
Stronger CAD & Weaker Outlook
In its monetary policy release, the Canadian monetary regulator stated the global economy is still surrounded by uncertainty. It estimates the economic outlook will hinge on the pandemic and the success rate of the ongoing global inoculation. On top of that, the rising Canadian dollar could create more hindrance for the economic outlook.
The Bank of Canada said it is committed to provide suitable stimulus to aid the economic recovery and attain the inflation target i.e., 2 percent, as per its press release.
