Discount rate hike boosts Greenback, affects Canadian Dollar

Discount rate hike boosts Greenback, affects Canadian Dollar

02-20-2010 14:58

The Greenback reached the highest rate this year against a number of key currencies, after the Fed increased its bank discount rate for loans, boosting demand for US Dollar-priced investments, while the economy shows signs of recovery, enabling the Federal Reserve to raise supportive policies.

Discount rate

All 16 key currencies fell against the US Dollar as the US central bank proclaimed to raise the discount rate for direct bank loans, the first hike in 36 months, reinforcing the theory that the economic recovery in the United States will enable the Federal Reserve to raise stimulus and increase interest rates at some point in 2010, improving the attractiveness of the Greenback in forex markets. Various optimistic economic figures dominated financial markets in the United States this week, enabling the Greenback to rise also against more profitable currencies like the Aussie and versus safe haven currencies like the Japanese Yen and the Swiss Franc.

Positivism towards US

The Federal Reserve’s aggressive tone and stance are resulting in positivism towards the United States, as its economy seems to perform much better than other main economic zones on the globe, like the economic situation in the South Pacific and in Europe. The Greenback will remain bullish if this scenario continues.

Canadian Dollar

While the Canadian Dollar reached the highest level in February after new risk seeking, today it declined against the US Dollar, following the Fed’s discount rate hike, the initial increase in 36 months, on which US Dollar-priced assets became more interesting than Canadian Dollar-priced assets.

Stimulus measures

The Loonie ended an upturn versus the Greenback and pared the majority of this week’s advances against its US counterpart, following the Fed’s discount rate increase, improving the attractiveness of US Dollar-priced investments and stimulating rumors that crisis support measures will be increased in the wealthiest nation in the world.