The Canadian dollar is continuing to head higher after yesterday’s BoC decision. As I write this, the USD/CAD is trading at 1.2654 in the North American session. Overall, USD/CAD is down 0.78% for the day. If the Canadian dollar continues its uptrend, it could break below the recent uptrend line and extend its rally to 1.26.
The Bank of Canada is widely expected to leave its policy levers alone and will speak on the central bank’s bond buying program. Meanwhile, inflation in Canada is at an 18-year high. Statistics Canada has noted that prices increased in all major components, with gasoline and transportation leading the way. As the central bank begins its tapering, it will be interesting to see if the hawkishness of the bank’s statement continues to drive the Canadian dollar higher.
The main argument against tightening policy is a new strain of Omicron, an infection. While the threat remains unclear, the recent spike in Covid infections has already scared the markets. Although it is too early to say if the virus is causing an outbreak, it is not enough to prevent a rate hike. The Bank of Canada is likely to play it safe in the meantime. In the meantime, the currency should remain stea