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Canadian Dollar Climbs as Bank of Canada says Economy healing faster than expected

Information just reaching us says that Canada’s dollar climbed the most since June after the country’s central bank said it plans to cut back asset purchases by one-quarter, and indicated it may hike interest rates as early as next year.

The loonie climbed as much as 1 per cent and outperformed all of its Group-of-10 currency peers as the Bank of Canada said in spite of the latest lockdowns, it expects the economy to fully heal faster than expected. The announcement pushed the spread between United States and domestic 10-year yields to 3.2 basis points, the narrowest in a year.

The loonie extended its advance following two straight weeks of gains as traders bid up the currency ahead of the announcement on bets the central bank would begin tapering. That’s in contrast to other major counterparts including the Federal Reserve that are not expected to tighten anytime soon.

For Greg Anderson, strategist at Bank of Montreal, the loonie is likely to remain supported and may strengthen to 1.2470, with an eye toward 1.2450 as the central bank did not push back on its strength in the policy statement.

“I thought the bank might try to complain about or argue against CAD strength — it didn’t,” Anderson said. “The bank merely made the factual statement that CAD had rallied alongside commodity prices. Based on that, I’m slightly less worried about the BoC trying to push back against CAD strength in the future.”


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