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BoC Preview: Hawkish Forward-Guidance to Fuel Bearish USD/CAD Sequence

BoC Preview: Hawkish Forward-Guidance to Fuel Bearish USD/CAD Sequence

2019-01-09 13:00:00
David Song, Strategist
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Trading the News: Bank of Canada (BoC) Interest Rate Decision

The Bank of Canada’s (BoC) first interest rate decision for 2019 may shake up the near-term outlook for USD/CAD as the central bank releases the updated Monetary Policy Report (MPR).

Image of DailyFX economic calendar

Even though the BoC is anticipated to keep the benchmark interest rate at 1.75%, the central bank may continue to prepare households and businesses for higher borrowing-costs as ‘the Canadian economy as a whole grew in line with the Bank’s projection in the third quarter.’ With that said, comments alluding to an imminent rate-hike is likely to trigger a bullish reaction in the Canadian dollar, with USD/CAD at risk of staging a larger correctionas the exchange rate carves a series of lower highs & lows.

However, the BoC may adopt a cautious outlook amid the weakening outlook for the global economy, and the Canadian dollar may face a more bearish fate should Governor Stephen Poloz & Co. tame bets for an imminent rate-hike. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Impact that BoC rate decision has had on USD/CAD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC

2018

12/05/2018 15:00:00 GMT

1.75%

1.75%

+81

+66

December 2018 Bank of Canada (BoC) Interest Rate Decision

USD/CAD10-Minute Chart

Image of usdcad 10-minute chart

As expected, the Bank of Canada (BoC) kept the benchmark interest rate unchanged at its last meeting for 2018, but it seems as though the central bank will implement higher borrowing-costs over the coming months as the ‘Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target.’ However, the BoC appears to be softening its hawkish tone as data prints coming out of the Canadian economy ‘indicate there may be additional room for non-inflationary growth,’ and the central bank may stick to its wait-and-see approach for the foreseeable future as ‘trade conflicts are weighing more heavily on global demand.

The Canadian dollar struggled to hold its ground following the BoC rate decision, with USD/CAD advancing from the 1.3300 region to end the day at 1.3353. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

USD/CAD Daily Chart

Image of usdcad daily chart
  • USD/CAD snaps the upward trend from October following the failed run at the 2017-high (1.3793), with the exchange rate carving a series of lower highs & lows amid the lack of momentum to close above the Fibonacci overlap around 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion).
  • The Relative Strength Index (RSI) highlights a similar dynamic as it snaps the bullish formation, with the 1.3130 (61.8% retracement) region back on the radar, with the next area of interest coming in around 1.2980 (61.8% retracement) to 1.3030 (50% expansion).

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide.

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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