Bank of Canada Stayed on the Sidelines for Second Straight Meeting

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BoC on Hold

The Bank of Canada kept rates unchanged at 5% for second consecutive meeting on Wednesday, helped by the moderation in the latest inflation data, as CPI eased to 3.8% y/y in September. The central bank has delivered 475 basis points worth of hikes since the March 2022 lift-off and policymakers see "growing evidence" that their past actions are "dampening economic activity and relieving price pressures".

The accompanying statement was generally a bit more dovish compared to the previous decision, but raised the CPI projection to 3.9% for 2023, from 3.7% previously. Officials are "concerned' that progress towards price stability is "slow" and noted that "inflationary risks have increased", reiterating their readiness to tighten policy further if necessary.

USD/CAD Analysis

USD/CAD runs its third straight profitable month, as the greenback has benefited from the Fed's hawkish bias and rising treasury yields. The pair extended its gains in the immediate aftermath of the BoC decision, eyeing the 2023 highs (1.3863), but further gains will likely need fresh impetus.

On the other hand, recent dovish Fed speakers have undermined the higher-for-longer mantra, while their Canadian peers kept more hikes on the table today. Furthermore, the RSI moves to overbought territory, which can contain the upside and create pressures back towards the EMA200 (1.3620). Daily closes below it would pause the bullish bias, but strong catalyst would be needed for that and the downside appears well protected.

Key releases are due this week that can determine the next leg of the move, highlighted by the US PCE inflation update.

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Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

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