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Canadian Dollar Sees Sharp Appreciation, Bank of Canada Keeps Rate Unchanged

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Nov. 20 2020, Updated 12:03 p.m. ET

Why the Canadian dollar is appreciating

The US dollar and Canadian dollar currency pair, which is inversely related to the Canadian dollar, fell sharply on March 9, 2016. The currency pair was trading at 1.324 at 11:40 AM EST, while the pair was trading at about 1.342 before the monetary policy announcement by the Bank of Canada. The pair was about 1.3% below the opening levels.

The sharp rise in Canadian Dollar was also due to the sharp rise in crude oil price as crude oil futures had already risen by 4.1% at 12:00 PM ET. The Canadian dollar has a strong correlation to the crude oil prices. (For more details on the correlation between Canadian dollar and crude oil, please refer to the article “Ruble and Crude in Near Perfect Synchronization.”)

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Bank of Canada keeps overnight rate unchanged

The Bank of Canada’s governor, Stephen Poloz, gave no major surprise to the market as the overnight rate was unchanged at 0.5%. The bank rate and the deposit also remained unchanged at 0.75% and 0.25%, respectively. The bank was of the view that the global economy was moving according to their forecast in the January Monetary Policy. The bank expects the global growth to strengthen this year, and the report also suggested that national employment figures have been holding strong despite the job loss in resource intensive regions. (For more information on the January monetary policy, please refer to the article “BoC Keeps Interest Rates Unchanged, Canadian Dollar Falls.”)

Market impact

As for Canadian exchange-traded funds, the iShares MSCI Canada ETF (EWC) had risen by 2.1% at 11:30 AM ET on March 9, after the Bank of Canada’s decision to keep interest rates unchanged.

Canadian banking ADRs (American depositary receipts) trading in US markets were also following a strengthening trend. The banking ADR Bank of Montreal (BMO), for example, rose by 2.1%. The Royal Bank of Canada (RY) and Bank of Nova Scotia (BNS) were trading higher by 1.9% and 3.1%, respectively, as of 11:30 AM ET. Also, Canadian Imperial Bank Of Commerce (CM) saw a rise of 2.2% on the same day.

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