The Canadian central bank unexpectedly cut interest rates today in a bid to support economic expansion. Exports have been threatened due to the strong currency. Today the Canadian Dollar fell sharply against all the major currencies. USD/CAD moved up a sharp 70 pips or so in the first minute on the news release. Could this be the end of the long term downward trend for USD/CAD? It is a possibility, although the US fundamentals look rather weak. Especially as some speculators are turning to the US Dollar for carry trades as I posted a while ago.
There appears to be a general market consensus that inflationary pressures in Canada are going to decline in the future, potentially leaving room for additional cuts. USD/CAD is certainly a commodity currency, closely following oil in the long term. Both oil and the CAD have made record highs in recent weeks. It will be interesting to see how closely this correlation will be with the weaker outlook for the Canadian economy.
