Today the The Bank of Canada (BoC) decided to keep its key deposit rate unchanged at the historical low of 0.25%, and re-iterated its pledge to keep rates at this level until the end of June. This was a widely expected move, and a widely expected statement by the BoC. In its statement, the BoC indicated stronger-than-expected recent economic growth and inflation, but said that it declined to raise rates due to the strength of its currency versus the US currency, and weak US demand for Canadian exported goods. The bank said that the Canadian economy grew at an annual rate of 5% in the fourth quarter of 2009, higher than it had projected.
The surprising growth and inflation, combined with the slightly less dovish comments made by the bank during its statement caused some speculation about an earlier time-line for economic tightening policies. This caused a significant spike down in the USDCAD pair, which led to further USD weakness versus the CAD throughout the afternoon.
Yet the Canadian government remains concerned about the strengthening of its currency versus the USD, as well as declining US demand for Canada's exports.
We are Bullish on the USDCAD in the Mid-Term.