Bank of Canada’s Dovish Tilt Pushes USDCAD Higher

  • USDCAD
    (${instrument.percentChange}%)

Further to yesterday's article, the Bank of Canada kept its overnight rate at 0.25%, which was expected. The market has been pricing in a rate hike as early as March next year, and possibly even earlier, but the BoC reaffirmed its guidance that the first hike should come "in the middle quarters of 2022." This was more dovish than the market expected, and the USDCAD reacted by jumping higher on release (aqua arrow).


Past Performance: Past Performance is not an indicator of future results.

In its statement the BoC writes "the devastating floods in British Columbia and uncertainties arising from the Omicron variant could weigh on growth by compounding supply chain disruptions and reducing demand for some services." With the next statements release on 26 January 2022, the BoC will have time to assess the severity of omicron as well as the economic effects of the floods. Barring any further shocks, the central bank is likely to shift more meaningfully to a hawkish bias thereafter.

However, in the interim, the dovishness has pushed the USDCAD higher. Below we look at the currency pair's H4 chart. The EMAs are looking to cross bullishly, and the stochastic has already started moving higher (aqua ellipses). If the stochastic moves towards 80 and above (aqua arrow), it will denote that the underlying bullish momentum is growing stronger. This being the case, it is likely to be accompanied by a higher USDCAD.


Past Performance: Past Performance is not an indicator of future results.

References:
https://www.bankofcanada.ca/2021/12/fad-press-release-2021-12-08/

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Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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