The USD/CAD currency pair is flirting with one week highs on U.S dollar strength. The pair has continued to edge higher on the Bank of Canada swinging into action to cushion the Canadian economy, which is under immense pressure amidst the COVID-19 pandemic.
The Canadian central bank has unveiled a new Provincial Bond Purchase program that will result in the injection of up to $50 billion into the economy. The new bailout will support the Corporate Bond Purchase Program through which the Bank is planning to acquire up to $10 billion in high-grade corporate bonds.
The massive stimulus package has triggered weakness on the Canadian dollar amidst a strengthening U.S Dollar.
The U.S dollar has continued to strengthen against other major currencies as it acts as a safe haven in times of crisis. The USD/CAD looks set to continue exhibiting a bullish outlook throughout the year given the strength of the U.S Dollar. Similarly, the pair should continue edge higher on traders betting on the U.S Dollar as a safe haven amidst the Coronavirus crisis.
Canadian Economy Concerns
Weakness in the Canadian dollar also comes at the backdrop of growing concerns about the health of the Canadian economy. The country’s central bank has had to step into action to combat a weakening growth outlook. Interest rate cuts in recent months have failed to have the desired impact forcing the central bank to utilize its balance sheet in a bid to revitalize the ailing economy.
BOC Governor, Stephen Poloz has already raised the red flag about the level of contraction taking place in the economy. A dovish outlook in terms of economic growth is on the cards having become clear that economic activity contracted by between 1 and 3% in the first quarter.
Economic activity slowdown could persist in the second quarter, according to the Central bank with the level of real activity posed to drop by between 15 and 30%. While it is expected that the current stimulus package will help avert aggressive slowdown, the Central Bank could turn to aggressive fiscal action and monetary stimulus to support a recovery.