The Canadian dollar traded relatively flat against its US peer in the middle of the trading week. The loonie is being primarily driven by the central bank leaving interest rates unchanged, citing stronger-than-expected growth in the first quarter of 2021. But with crude oil prices taking a breather from their meteoric ascent, the loonie might not be able to take advantage of the bullish factors.
During its March policy meeting, the Bank of Canada (BoC) confirmed that it would be holding its overnight rate at 0.25% and maintaining its extraordinary quantitative easing (QE) program. The BoC stated that it will keep its accommodative efforts until the economic recovery expands.
BoC officials said in a statement:
“The Bank is maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week.
As the Governing Council continues to gain confidence in the strength of the recovery, the pace of net purchases of Government of Canada bonds will be adjusted as required. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.”
Policymakers noted that they had been surprised by the housing market’s enormous strength during the COVID-19 public health crisis, adding that “consumers and businesses are adapting to containment measures.”
Still, the institution warns that there remains plenty of uncertainty, alluding to the labor market being a long way from pre-pandemic levels. The BoC also alluded to low-wage workers, young people, and women representing a large portion of the job losses.
The Canadian bond market was mostly in the red following the meeting, with the benchmark 10-year bond sliding 0.043% to 1.403%. The one-year bill dropped 0.055% to 0.155%, while the 30-year bond slipped 0.008% to 1.825%.
Energy commodities hit the pause button on its rally midweek. April West Texas Intermediate (WTI) crude oil futures slid $0.12, or 0.19%, to $63.89 per barrel. May Brent crude futures dipped $0.05, or 0.07%, to $67.47 a barrel. April natural gas futures were up slightly, picking up $0.025, or 0.96%, to $2.722 per million British thermal units (btu).
Canada maintains a current account deficit, so the national economy relies on exports for growth. Since oil and gas remain the nation’s top shipments to foreign markets, any price change can have an impact on the loonie and the broader economy.
The USD/CAD currency pair edged up 0.02% to 1.2645, from an opening of 1.2638, at 17:41 GMT on Wednesday. The EUR/CAD jumped 0.1% to 1.506, from an opening of 1.5042.