What Was the Noon Rate?
The noon rate was a forex term used by the Bank of Canada (BOC) publishing a specific instance of the foreign exchange rate between the U.S. dollar and the Canadian dollar (CAD), i.e., the USD/CAD rate. The noon rate was released by 12:45 p.m. each day by the central bank, and was based on the weighted average in CAD trading taking place from 11:59 a.m. to 12:01 p.m. on that day.
The BOC also published a closing rate at 4:30 p.m. Effective April 28, 2017, the BOC abandoned both these rates and changed over to publishing a single indicative daily rate per CAD currency pair.
- The noon rate was a benchmark exchange rate for USD/CAD published around midday each day by the Bank of Canada (BOC).
- The rate was compiled based on the three-minute trading activity from 11:59 a.m. to 12:01 p.m. in the forex markets in USD/CAD on a weighted average basis.
- The BOC abandoned the noon rate in 2017, which only provided a point-in-time snapshot, in favor of a more comprehensive single indicative rate.
How the Noon Rate Worked
The noon rate had been widely used as a benchmark exchange rate by companies and others needing to make foreign exchange calculations in USD/CAD, and was retired in 2017, replaced by a single indicative rate. The changeover to the single rate had been telegraphed well in advance, allowing affected parties enough time to make the proper adjustments. Indeed, the BOC had announced in February 2016 that it would be changing its exchange rate publication methodology. The new rate reflects a broad daily average rather than the point-in-time value of the noon rate, and is published at 4:30 p.m. daily.
The change in methodology was partly spurred by the results of a 2014 BOC survey (which elicited almost 17,000 responses) as well as from other broad public consultations, taking into account broader ongoing international research into financial benchmarks. The 2014 survey had indicated that while there was widespread use of the benchmark, this was not methodology-dependent and users would be able to adjust their processes to a new methodology. The BOC also noted that financial markets were much less transparent when it had begun publishing the noon and closing rates; real-time exchange rates are now widely available to both market participants and the public, lessening the need to publish time-specific rates.
The USD/CAD pair is among the most liquid and widely traded currency pairs in the forex market. The value of the USD/CAD pair is quoted as 1 U.S. dollar per 'X' Canadian dollars. For example, if the pair is trading at 1.20 it means that it takes 1.2 Canadian dollars to buy 1 U.S. dollar. Although the USD/CAD currency pair has reached parity at different points in history, the U.S. dollar has traditionally been the stronger of the two currencies. The USD/CAD currency pair is quite important as there are significant business ties and trade occurring between the two nations.
Trading the USD/CAD currency pair is also known as trading the "loonie," which is the name for the Canadian one dollar coin.