The Canadian dollar strengthened against its U.S. counterpart on Thursday as the greenback broadly fell and Bank of Canada Governor Tiff Macklem gave no hint that further tapering of bond purchases was off the table at an announcement next month.
The Canadian economy is moving closer to the point where the Bank of Canada will no longer need to keep adding stimulus to the economy through its quantitative easing program, but it is not there yet, Macklem said.
The market was “concerned that Macklem might use the speech maybe to lay out a case for not doing a taper increment in October,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets. “The question was is that shoe going to drop in Macklem’s speech ... and it didn’t drop.”
The BoC is due to make an interest rate announcement and update its economic forecasts on Oct. 27.
“The passing of the event risk, CAD probably needed to appreciate back a little bit of the nervousness that had caused it to underperform,” Anderson said.
The Canadian dollar was trading 0.3% higher at 1.2650 to the greenback, or 79.05 U.S. cents, after trading in a range of 1.2622 to 1.2727. On Tuesday, the currency hit a two-week low at 1.2761.
The price of oil, one of Canada’s major exports, was pressured by China’s plan to release state oil reserves to reduce pressure on domestic refiners.
U.S. crude oil futures settled 1.7% lower at $68.14 a barrel, while the U.S. dollar declined against a basket of major currencies. The European Central Bank, as expected, said it would reduce the pace of bond buying under its emergency scheme.
Canadian government bond yields eased across a flatter curve, tracking the move in U.S. Treasuries. The 10-year fell 3.2 basis points to 1.173%.
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