USD/CAD - Canadian Dollar Awaits BoC

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The Canadian dollar extended yesterday’s gains and punched below USD/CAD support at $1.2700 at the Toronto open. The move was not sustained due to an abundance of caution ahead of U.S. President-elect Joe Biden’s inauguration.

A presidential inauguration has always been about pomp and pageantry, similar to a royal coronation. The President-elect is surrounded by friends and family with hordes of well-wishers looking on. Not this time.

FX traders are in a cautious, but positive, "risk-on" mode.

The U.S. dollar is down for the third consecutive day as markets evaluate incoming Treasury Secretary Janet Yellen’s remarks and Biden’s stimulus plans. Traders are taking their cue from global stock markets which are rather buoyant.

Markets appear to be less concerned about the latest round of restrictions imposed to combat the spread of COVID-19 in many regions of the world, partly because of the rollout of vaccines. Traders are concerned about the inflationary impact of massive U.S. stimulus on inflation in a low-interest-rate environment.

Yellen expressed her support for Biden’s $1.9-trillion relief program in her confirmation hearing yesterday.

She said, "We need to make sure that people aren’t going hungry in America, that they can put food on the table, that they’re not losing their homes and ending up out on the street because of evictions. We really need to address those forms of suffering, and I think we shouldn’t compromise on it."

Her comments underpinned stock markets undermined the U.S. dollar, and sparked gains in gold and oil prices.

The Bank of Canada monetary policy meeting today is not expected to have any immediate impact on the Canadian dollar. The BoC is widely expected to leave interest rates, and quantitative easing purchase amounts unchanged. The latest outbreak of COVID-19 in Ontario and elsewhere may cause them to tweak short-term economic growth forecasts.

Canada December inflation is expected to be flat and not a factor for traders. BoC Governor Tiff Macklem said domestic rates will remain unchanged for an extended period, and today’s Consumer Price Index data will not change that view.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates