The Bank of Canada decided to keep rates at 5.0% on Wednesday, after two back-to-back hikes . The economy is in a period of "weaker growth", as last week's data revealed a contraction of 0.2% in the second quarter. The labor market has "continued to ease gradually", with unemployment rising for the past three months, reaching the highest level in over a year in July (5.5%).
On the other hand, employment conditions remain somewhat tight, with elevated wage growth. Most importantly, CPI inflation accelerated to 3.4% y/y in July, after having eased over the previous two months. This keeps policymakers on their toes, who are "concerned about the persistence" of underlying price pressures. As such, they kept more tightening in play, stating their readiness to hike rates further if needed, making yesterday's decision a hawkish hold.
The US Fed announces its decision in two weeks, with markets widely expecting a pause. Things are murkier after that though, as the economy is strong and the labor market hot despite some easing, sustaining the higher-for-longer prospects.
USD/CAD rose in June and July as the BoC had resumed its rating hiking cycle, but has entered its second straight losing month, with the greenback benefiting from prospects of more monetary restrain by the Fed. After Wednesday's hold by the BoC, the pair was little changed. It maintains its bullish bias though and keeps the 2023 highs in its crosshairs (1.3863).
However, it shows indecision this week and a pullback to the EMA200 (1.3480-90) would be reasonable. Daily closes below it could pause the upside bias, but strong catalyst would be needed for that and the downside appears well-protected, starting the with the daily Ichimoku Cloud.
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.
Retrieved 03 Mar 2024 https://www.bankofcanada.ca/2023/09/fad-press-release-2023-09-06/