The Canadian dollar pared the overnight decline and is currently the best performing currency against the greenback on Monday, and the exchange rate may continue to trend lower going into the Asian trade as the economic docket reinforces an improved outlook for the region. The USD/CAD is 64 points lower on the day after moving 105% of its daily ATR, and the decline appears to have stalled ahead of 1.0450 as the 30-minute RSI bounces back from a low of 34. As a result, we may see the exchange rate cross back above the 10-Day SMA (1.0488) and fill-in the gap from the 240-SMA at 1.0535, but a break to the downside would expose the February low at 1.0370. Nevertheless, as the Bank of Canada is widely expected to hold the benchmark interest rate at 0.25% during its meeting tomorrow at 14:00 GMT tomorrow, dovish commentary following the rate decision could drive the exchange rate higher as the central bank pledges to hold borrowing costs at the record-low throughout the first-half of the year. However, market participants speculate the BoC to conclude its emergency program this month as economic conditions improve, and a rise in interest rate expectations could strengthen the Canadian dollar as Governor Mark Carney aims to normalize policy this year.
The British Pound tumbled lower on Monday and slipped to a fresh yearly low of 1.4784, but we could see a corrective retracement later on today as the 30-minute RSI bounces back after falling deep into oversold territory. The GBP/USD remains 300pips lower on the day after moving a whopping 239% of its average true range, and the five-day decline certainly looks to be overdone as the daily RSI dips to 20. As a result, we may see the pair continue to bounce back from the low throughout the North American session, which could lead the pair to cover the gap from the 120-SMA at 1.5202 later this week. Nevertheless, the Bank of England is anticipated to hold borrowing costs at the record-low on Thursday as the MPC aims to balance the risks for growth and inflation, and any commentary following the rate decision is likely to spark increased volatility in the exchange rate as investors weigh the outlook for future policy.
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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com
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