Bank of Canada sends USD/CAD lower by rejecting negative rates, scaling back operations

The Bank of Canada has left its interest rate unchanged at 0.25% as expected. The Ottawa-based institution also stressed that those current borrowing costs are the effective lower bound and that negative rates are not under active consideration.

Moreover, the BOC has stated it is scaling back some of its market operations after announcing bond-buying back in March, at the peak of the financial distress related to coronavirus.

The bank now says that the effect of the virus has likely peaked and that second-quarter contraction could be 10-20% rather than worse expectations beforehand. 

Here is the concluding paragraph from the BOC's statement:

As market function improves and containment restrictions ease, the Bank's focus will shift to supporting the resumption of growth in output and employment. The Bank maintains its commitment to continue large-scale asset purchases until the economic recovery is well underway. Any further policy actions would be calibrated to provide the necessary degree of monetary policy accommodation required to achieve the inflation target.
 

USD/CAD dropped in response and trades below 1.35. 

At the same time, US ISM Non-Manufacturing Purchasing Index marginally beat expectations by hiring 45.4 points, an encouraging figure ahead of Friday's Non-Farm Payrolls.

The Bank of Canada was expected to leave interest rates unchanged at 0.25%. Governor Tiff Macklem assumed office in recent days, taking over from Stephen Poloz. The outgoing head of the bank recently expressed optimism, saying that the situation is better than some think.