Canadian dollars
Canadian dollar rises to new highs vs euro and pound and moves off lows against greenback. Reuters

The Canadian dollar rallied to a three-month high as the Bank of Canada left rates steady and oil prices surged to four-month highs while broad weakness of the greenback helped.

The market consensus was for a hold decision this time, but there were a good number of analysts expecting a cut in the benchmark overnight rate of 0.75%. The bank rate is correspondingly 1% and the deposit rate 0.5%.

The Bank of Canada said the current policy stance is appropriate even while projecting zero growth for the first quarter.

At the 4 March review, Canada had left the rate steady saying financial conditions had eased and risks to the inflation outlook were more balanced. On 20 March, data showed the Canadian inflation rate stood at 1% in February.

Canada's GDP and labour market data of late have been slightly more hawkish than expected. The Canadian economy contracted only 0.1% in January while analysts had been expecting a 0.2% decline. Also, Canadian employers added 28,700 jobs in March, after cutting 1,000 jobs in February. The consensus was for no change.

In effect, steady inflation and a slight surprise in other macroeconomic indicators led to the hold decision in April, prompting those who priced in a cut to cover their loonie short positions.

The USD/CAD plunged to 1.2291 from 1.2484 on Wednesday (15 April), translating to a 1.57% rise in the Canadian unit on the day. The pair added to its losses on Thursday and hit 1.2280, its lowest since 21 January.

Technically, break of the 1.2352 support seems crucial for the pair, as it has opened new levels far deeper in the 1.2115-1.2061 zone. A break of the 1.20 region will see no stops until 1.1700, or to be precise, the 1.1725-1.1675 region.

As of now, 1.2350 is a resistance, but the real test on the higher side immediately will be 1.2500, only a break of which will open doors to new highs beyond the multi-year high of 1.2836 touched last month. Levels like 1.2600 and 1.2700 may be watched ahead of that but they are not crucial.

Oil price rise

Meanwhile, crude prices continued the rise amid worsening Middle East worries and as data from the US showed production will be lower in the near term. The Canadian dollar is highly sensitive to oil prices as the country gets much of its export revenues from petroleum shipments.

Brent crude for spot delivery surged to a four-month high of $63.44/bbl on Wednesday before easing slightly to $62.53 on Thursday. The commodity is up 14% so far this month, and off nearly 40% from the six-year low of $45.16 touched in January.

The US dollar had traded higher early Wednesday helped by safe haven flows after the weaker than expected China data, but the ECB policy review later in the day pulled it back, leading the USD index down to a six-day low of 97.90, by early Thursday.