TORONTO: The Canadian dollar weakened against the greenback on Monday as worries about the Omicron coronavirus variant weighed on sentiment and the Bank of Canada said it could maintain interest rates lower for longer if needed to help keep employment at optimal levels.
The BoC unveiled an agreement with the federal government to keep its inflation target unchanged at 2% and said that major forces, such as demographics and technological change, were having profound effects on the labor market.
“It is being viewed as a marginal dovish development by markets,” said Simon Harvey, senior FX market analyst for Monex Europe and Monex Canada. “This may be due to uncertainty around the maximum level of employment.”
“This knee-jerk reaction is too aggressive in our view as the current labor market trajectory in Canada is unlikely to derail the BoC’s (policy) normalization path,” Harvey said.
Data this month showed that the number of Canadian jobs has climbed further above pre-pandemic levels, while the central bank has said it could begin to hike interest rates as soon as April.
US stocks fell as the fast-spreading Omicron variant now accounted for around 40% of COVID-19 infections in London and investors awaited a Federal Reserve meeting later this week that could hint at a faster tapering of asset purchases.
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