USD/CAD rises toward 1.3980 after BoC cuts rates in a surprise move

• Bank of Canada lowers overnight target rate by 50 basis points on negative economic shock from coronavirus. 
• USD/CAD rises but then quickly retreats, it holds under 1.4000

The USD/CAD rose from 1.3905 to 1.3978, slightly below the daily high following a surprise rate cut from the Bank of Canada. The Loonie depreciated moderately across the board after the announcement, approaching daily lows versus the greenback and trimming gains versus AUD, NZD. 

The Bank of Canada lowered the key rate by 50 basis points. “This unscheduled rate decision is a proactive measure taken in light of the negative shocks to Canada’s economy arising from the COVID-19 pandemic and the recent sharp drop in oil prices”, said the central bank in a statement. The Federal Reserve is expected to do the same next week at the FOMC meeting, if not before. 

At the same time in Canada, Finance Minister Moreau and BoC Governor Poloz announced a credit facility program, that will be available to businesses and to stimulate the economy. Moreau added they are preparing a significant stimulus program for next week. 

The decline in the Loonie has been limited despite the BoC rate cut. The moment of the announcement was a surprise but not the decision itself. Markets were discounting more action from the BoC after the latest cut.