Into the last trading day of the week, the Canadian dollar firmed on Thursday as investors welcomed moves made by the Canadian government and central bank which helped to reassure flighty markets overnight. But the currency may still be at risk of declines up ahead. Meanwhile, Sterling remained under pressure as the market scrutinised recent comments from the Bank of England’s governor Andrew Bailey who hinted that the central bank may have to step in regarding GBP’s recent underperformance against nearly all rivals of late. The GBP/CAD exchange rate fell as CAD bolstered its strength as GBP faltered. The two were trading below the 1.70 level yesterday. However, in an unexpected move from the BoE yesterday afternoon, the BoE announced a shock emergency rate cut which brought the UK interest rate down to 0.1%. As a result, the GBP found favour with investors who welcomed the UK’s all-out attack on the coronavirus outbreak in a bid to save the UK economy from a recession.
Canadian dollar firms as central bank takes action against coronavirus threat
For the Canadian dollar, it saw a firm in the market as markets digested a string of government and central bank actions designed to support companies and households within coronavirus affected economies. This included a CA$27 billion spending package from the Canadian government and a CA$55 billion set of tax reliefs which have been designed to improve liquidity in the private sector. Those measures were announced as the US senate passed a similar coronavirus plan and came ahead of further monetary measures taken by the Reserve Bank of Australia and the European Central Bank.
The Canadian central bank, the Bank of Canada (BoC) noted that it stands ready to provide all the liquidity, but investors noted that the bank veered away from committing to cut interest rates before the April 15 monetary policy meeting. The market previously speculated that the BoC might become reluctant to cut rates further if the Canadian dollar undergoes a steep devaluation, which has since played out and could be playing a role in keeping the BoC’s fingers off the rate cut trigger.
Support for CAD in GBP/CAD pairing as GBP suffers from BoE pressures
Meanwhile, the GBP/CAD exchange rate fell through the 1.70 level yesterday. The pound Sterling has underperformed against most rivals of late. Fears concerning the UK’s rising current account deficit has decreased the value of the pound. This came from an apparent buyers’ strike on UK assets that has drawn hints from the BoE’s governor Andrew Bailey, who noted on Wednesday that he plans to address the weakness in GBP on March 26 – the scheduled date for the UK’s monetary policy meeting.
However, the next monetary meeting appeared to be too long for the UK central bank to act as they yesterday announced a cut in GBP interest rates. The new rate stood at 0.1% and the BoE increased its government and corporate bond holdings by £200BN in unanimous decision in a bid to fend off the negative effects of the COVID-19 outbreak. The total value of bonds the Bank will now hold is therefore taken up to £645 billion and should provide enough demand to push the yield paid by the government and corporates lower. The move helped the GBP to gain on many of its rival currencies including the Canadian dollar.
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