Investing.com - The U.S. dollar ended the week at six year highs against the Canadian dollar on Friday after Canada’s central bank cut borrowing costs for the first time since 2009 in an unexpected move on Wednesday.
USD/CAD hit highs of 1.2456, the most since April 2009 before easing back to 1.2419 in late trade. The pair ended the week with gains of 3.75%.
The BoC shocked markets when it lowered its overnight target rate to 0.75% from 1.0%, in response to the recent sharp drop in oil prices.
The central bank said the recent rout in oil, which has halved in the past six months, would be negative for growth and underlying inflation in Canada. It also expects lower oil prices to boost global economic growth, especially in the U.S.
Crude oil is Canada’s largest export.
The BoC said it now expects economic growth to slow and inflation to fall below the bank’s target in the coming year.
The loonie remained under pressure after data on Friday showed that the annual rate of inflation in Canada slowed to 1.5% in December from 2% in the previous month, pressured lower by the largest drop in gasoline prices in over five years.
On a month-over-month basis, consumer prices fell 0.7%, the largest decline since June 2011, while core inflation fell 0.3%.
The dollar remained broadly stronger, boosted by the diverging monetary policy stance between the Federal Reserve and central banks in Europe and Japan.
The European Central Bank unveiled a €1.2 trillion quantitative easing program on Thursday, aimed at combating slowing growth and inflation in the euro area.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose to more than 11-year highs of 95.77 on Friday, supported by weakness in the euro, and was last up 0.69% at 95.32.
In the week ahead, investors will be focusing on Friday’s preliminary data on U.S. fourth quarter growth, while Canada is to release its monthly economic growth report.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets. The guide skips Monday as there are no relevant events on this day.
Tuesday, January 27
The U.S. is to release data on durable goods orders, as well as private sector reports on consumer confidence and new home sales.
Wednesday, January 28
The Federal Reserve is to announce its benchmark interest rate and publish its rate statement, which outlines economic conditions and the factors affecting the monetary policy decision.
Thursday, January 29
The U.S. is to publish the weekly report on initial jobless claims as well as private sector data on pending home sales.
Friday, January 30
Canada is to publish its monthly report on gross domestic product, the broadest indicator of economic activity and the leading measure of the economy’s health.
The U.S. is to round up the week with preliminary data on fourth quarter growth as well as reports on business activity in the Chicago region and revised data on consumer sentiment.