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Hawkish Bank of Canada (BoC) Forward-Guidance to Rattle USD/CAD Rally

Hawkish Bank of Canada (BoC) Forward-Guidance to Rattle USD/CAD Rally

David Song, Strategist

Trading the News: Bank of Canada (BoC) Interest Rate Decision

The Bank of Canada (BoC) interest rate decision may rattle the recent strength in USD/CAD as the central bank appears to be on track to further embark on its hiking-cycle in 2019.

Image of DailyFX economic calendar

Fresh comments from the BoC may heighten the appeal of the Canadian dollar as the central bank retains a hawkish forward-guidance for monetary policy, and Governor Stephen Poloz & Co. may prepare households and businesses for higher borrowing-costs as the ‘Governing Council continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target.

In turn, indications of a looming BoC rate-hike may spur a bullish reaction in the Canadian dollar as the central bank remains reluctant to abandon the hiking-cycle, but a material change in the forward-guidance may fuel the recent advance in USD/CAD as data prints coming out of the Canadian point to a slowing economy.

Impact that the BoC meeting has had on USD/CAD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JAN

2019

01/09/2019 15:00:00 GMT

1.75%

1.75%

-1

-22

January 2019 Bank of Canada (BoC) Interest Rate Decision

USD/CAD10-Minute Chart

Image of usdcad 10-minute chart

The Bank of Canada (BoC) kept the benchmark interest rate at 1.75% after holding its first meeting for 2019, with the central bank striking a less-hawkish tone as the ‘revised forecast reflects a temporary slowing in the fourth quarter of 2018 and the first quarter of 2019.’ Nevertheless, it seems as though the BoC is reluctant to abandon the hiking-cycle as ‘the appropriate pace of rate increases will depend on how the outlook evolves,’ but the central bank may continue to change its tune over the coming months as ‘consumption spending and housing investment have been weaker than expected.’

The Canadian dollar gained ground following the hawkish forward-guidance, but the initial reaction was short-lived, with USD/CAD bouncing back from a low of 1.3180 to close at 1.3209. 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 may continue to retrace the decline from the January-high (1.3663) following the string of failed attempts to close below the 1.3130 (61.8% retracement) hurdle, with recent developments in the RSI highlighting the risk for a further appreciation in the exchange rate as the oscillator breaks out of the bearish formation from earlier this year.
  • The recent series of higher highs & lows keeps the topside targets on the radar, with the next area of interest coming in around 1.3420 (78.6% retracement) to 1.3460 (61.8% retracement) followed by the 1.3540 (23.6% retracement) region.

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--- 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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