Home Forex News USD/CAD Drops As CAD Strengthens to 3-Month Highs Against Greenback

USD/CAD Drops As CAD Strengthens to 3-Month Highs Against Greenback

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  • Canada Economy Recovery
  • Interest Rate Decision
  • Non-Farm Payroll Report

The Canadian dollar (CAD) continued to strengthen against the U.S dollar, rallying to three-month highs as economic recovery from the Coronavirus epidemic continued to gather pace. The pair dropped as the Bank of Canada announced plans to taper away some of the emergency operations introduced to cushion the economy in the aftermath of the pandemic.

Economic Recovery

Optimism that the Canadian economy avoided the worst-case projections at the back of the coronavirus pandemic is the latest development-fueling sentiments around the CAD. The Bank of Canada opting to keep interest rates steady also continues to influence CAD strength.

The Bank of Canada confirms it will reduce the frequency term of its repo operations to once a week, affirmed that the economy is on a recovery path. Similarly, the central bank says it will curtail its program to purchase bankers acceptance to bi-weekly operations.

Improving economic data is another development fuelling CAD strength against the dollar. Recent economic releases indicate that labor productivity increased by 3.4% in the first quarter, the largest quarterly increase.

USD/CAD Outlook

However, the export-dependent economy is still reeling from the effects of the COVID-19 pandemic. The Central Bank’s deputy Governor Toni Gravelle has said they are paying close watch on how the epidemic is affecting growth and demand in key markets.

The country’s exports and imports plunged in April by 29% to $24.2 billion as oil prices plunged to record lows. Trade with the U.S also slumped to $17.35 billion, with the trade deficit widening to C$3.25 from $1.53 billion. Amidst the declines, there are clear signs that credit is slowly flowing into the financial markets, pointing to accelerated recovery.

Canadian Dollar strength against the dollar will be in the spotlight as the U.S reports its Non-Farm Payroll report for May. Analysts expect the report to show the U.S economy lost 8 million jobs in May compared to a 20 million loss in April. Similarly, the unemployment rate is expected to tick higher to 19% from 14%. A better than expected report could result in the strengthening of the dollar, which could send the USD/CAD pair higher.

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