USD/CAD reacts to the BoC’s decision

USD/CAD fell for the first time in the week, down by 0.25%, trading at 1.2358 during the New York TRADING session.

As the BoC decided to keep interest rates unchanged, investors’ expectation towards the QE was a reduction in its weekly purchases from CAD 2 billion to CAD 1 billion. Instead, the central bank decided to cut short its stimulus, as the threatening inflation haunts the Canadian economic growth.

Before the announcement, the pair was trading at 1.2430 but plummeted on the announcement 130 pips, touching the daily low at 1.2300. USD/CAD downward move capped at 1.2300, and the pair was able to remain steady around 1.2350

One hour after the release of the statement, BoC Governor Tiff Macklem held a press conference. He said that despite the bank’s decision to finalize the QE program, significant stimulus to the economy would remain applicable.

The end of QE coincides with increasing vaccination rates enabling continued progress of Canada’s economic recovery.

The central bank also announced that it would end the QE program, but it will begin the “reinvesting phase.” The BoC will purchase bonds only to replace those maturing, meaning that the overall holdings remain stable over time.

Macklem added that he believes there are good reasons for inflation to ease in 2022 but warned that if fiscal policymakers see signs of prolonged inflation, they will take action to curb elevated price pressures.