BoC became the first major central bank to reduce its scale on bond purchasing due to doubling inflation; ECB’s meeting in focus, possibly to touch on the recently escalated bond purchasing program

•USDCAD fell sharply as BoC rein in its bond purchasing program
•USD continues to edge lower amid falling yields
•ECB’s policy-setting meeting in focus later in the day

CAD rose aggressively after the Bank of Canada became the first major central bank to rein in its bond purchasing program, signaling a shift away from an ultra-accommodative policy. This move was due to the doubling inflation rate in March, which landed at 2.2%. Previously BoC had commented that inflation rate would probably return sustainably to the 2% target by 2023. On rate decision, BoC left its benchmark rate unchanged at 0.25% but slowed down the pace on weekly bond buying from C$4 billion to C$3 billion. Started from last year, BoC is believed to have bought up nearly 50% of the country’s outstanding debt under its massive monetary stimulus program, but now BoC regards it as somewhat excessive. According to the new comment, inflation is also expected to be near its target in the second half of 2022 instead of 2023.

Despite receiving some strength earlier, USD continues to edge lower, retreating once again to near 7-week low as the bond yield losing steam. The earlier support was due to the worrying condition over the pandemic especially in India. USDINR climbed to the highest level since July 2020 as India reported a record high on daily new cases. However, the support on USD was temporary amid falling yields which reduce the currency’s yield appeal.

Later in the day, ECB will conduct its policy-setting meeting, ahead of the Fed’s and Bank of Japan’s meetings next week. ECB President Christine Lagarde is likely to be pressed on her thoughts about ECB’s bond purchasing program, which has recently stepped up in order to prevent a rise in borrowing costs that may further impeded Eurozone’s recovery.