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An extraordinary day for CAD - TD Securities

FXStreet (Barcelona) - Shaun Osbourne, Chief FX Strategist at TD Securities explained that Yesterday was an extraordinary day for the Canadian dollar.

Key Quotes:

"The shocking incidents in Ottawa overshadowed the Bank of Canada policy statement and contributed to a sense of paralysis in the CAD in the aftermath of the policy announcement. This was compounded by the uncertainty that developed around the shootings and both the cancellation of Governor Poloz's press conference and his appearance later in the day on Parliament Hill."

"While yesterday's data flow was not what we expected (weaker Canadian data versus slightly better US data), the market movement was largely in line with how we thought the day would pan out, with the USD holding support in the low 1.12s and the rally halting around 1.13."

"The drop in spot again from the high 1.12s on the BoC policy statement – which saw the bank remove the reference to the "neutral" policy bias – was an over-reaction. While there were some positives in the statement, the bank made it clear that there was still "considerable excess capacity" in the economy and that "continued monetary stimulus is needed to close the gap and bring inflation sustainably to target". The BoC is no nearer to adjusting rates now that it was at 9.59ET yesterday."

"Dropping the "neutral" policy bias and replacing it with an assessment that the "balance of risks falls within the zone for which the current stance of monetary policy is appropriate" changes nothing in the policy outlook. This was no more than a tweak to the communications strategy to allow more flexibility going forward."

"There are more headwinds for the CAD today in the form of renewed weakness in oil prices. Crude inventories rose much more than expected last week in DoE data released yesterday, dumping WTI back to $80, a fraction off last week’s low. The CAD is still correlating relatively weakly with crude but sub-80 levels would heightened concerns about profitability and investment in the oil patch."

"On the charts, a bias towards USD strength is visible, with USD/CAD holding support in the 1.1200 area over the last 24 hours and trading through short-term break out resistance on the 6-hour chart at 1.1240, just. But momentum is slacker today and while we feel the USD is likely to move higher, gains are likely to remain capped around 1.13 again."

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