USD/CAD Subdued After Wednesday’s Hawkish Surprise by the Bank of Canada

  • USDCAD
    (${instrument.percentChange}%)

USD/CAD Analysis

The Bank of Canada was the first major central bank to pause its year-long rate hiking cycle back in March, when it left rates unchanged at 4.5%. Policymakers had stayed on the sidelines since then, as inflation was coming down, but that changed a few weeks back. The latest CPI report showed that headline inflation ticked up to 4.4% y/y in April, from 4.3% prior, in the first increase since the June 2022 multi-decade peak.

On Wednesday, policymakers offered a hawkish surprise with their decision to restart their hiking cycle, in another sign that central banks are all over the place. They raised rates by 25 basis points, to 4.75% and the highest levels in twenty-two years, as their policy stance was "not sufficiently restrictive" to return inflation to the 2% target. [1]

According to April's projections, the BoC expected this to happen gradually by the end of 2024 [2], but noted yesterday that "concerns have increased" about the CPI getting stuck "materially above" target. The central bank refrained from offering forward guidance, but reiterated its resolve its "commitment to restoring price stability for Canadians".

USD/CAD dropped to new monthly lows on Wednesday right after the decision and remains suppressed today. This creates risk for new 2023 lows and a breach of the 38.2% Fibonacci of the 2021 low/2022 high advance (1.3227-5), although a strong catalyst would be needed for a test of 1.2995-75. This region includes the 50% level and the ascending trend line form the aforementioned low.

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On the other hand, USD/CAD tries to find support ahead of the pivotal 38.2% Fibonacci and as long a it defends this level, it has the ability to return above the EMA200 (1.3500). This would also keep 1.3978-1.4008 in play, but this is distant for now.

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.

References

1

Retrieved 07 Jun 2023 https://www.bankofcanada.ca/2023/06/fad-press-release-2023-06-07/

2

Retrieved 02 Mar 2024 https://www.bankofcanada.ca/2023/04/fad-press-release-2023-04-12/

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