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USDCAD Rate Risks Near-Term Breakout on Dovish Bank of Canada (BoC)

USDCAD Rate Risks Near-Term Breakout on Dovish Bank of Canada (BoC)

2019-04-24 12:30:00
David Song, Strategist
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Trading the News: Bank of Canada (BoC) Interest Rate Decision

The Bank of Canada (BoC) interest rate decision may fuel the recent advance in USD/CAD as the central bank is widely anticipated to keep the benchmark interest rate at 1.75% in April.

Image of DailyFX economic calendar

At the same time, the updates to the BoC’s Monetary Policy Report (MPR) may shake up the near-term outlook for the Canadian dollar as Governor Stephen Poloz & Co. warn that ‘the economy will be weaker in the first half of 2019 than the Bank projected in January,’ and the central bank may show a greater willingness to abandon the hiking-cycle as ‘it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook.

With that said, the BoC may continue to alter the forward-guidance for monetary policy as ‘trade tensions and uncertainty are weighing heavily on confidence and economic activity,’ and a batch of dovish comments may spark a bearish reaction in the Canadian dollar as market participants scale back bets for higher interest rates.

However, Governor Poloz & Co. may merely attempt to buy more time as ‘core inflation measures remain close to 2 per cent,’ and more of the same from the BoC may curb the recent advance in USD/CAD as the central bank remains reluctant to abandon the hiking-cycle. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Impact that the BoC interest rate decision 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)

MAR

2019

03/06/2019 15:00:00 GMT

1.75%

1.75%

+53

+67

March 2019 Bank of Canada (BoC) Interest Rate Decision

USD/CAD 5-Minute Chart

Image of usdcad 5-minute chart

As expected, the Bank of Canada (BoC) kept the benchmark interest rate at 1.75% in March, with the central bank largely endorsing a wait-and-see approach for monetary policy as the ‘Governing Council judges that the outlook continues to warrant a policy interest rate that is below its neutral range.’ The fresh remarks suggest Governor Stephen Poloz & Co are in no rush to implement higher rates as ‘recent data suggest that the slowdown in the global economy has been more pronounced and widespread than the Bank had forecast in its January Monetary Policy Report (MPR).’

The Canadian dollar struggled to hold its ground following the BoC meeting, with USD/CAD climbing above the 1.3400 handle to close the day at 1.3442. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

USD/CAD Rate Daily Chart

Image of usdcad daily chart
  • USD/CAD appears to be on its way to test the March-high (1.3467) as the 1.3290 (61.8% expansion) to 1.3310 (50% retracement) region continues to offer support, with the Relative Strength Index (RSI) flashing a bullish signal as the oscillator breaks out of the downward trend carried over from the previous month.
  • In turn, a break/close above the Fibonacci overlap around 1.3420 (78.6% retracement) to 1.3460 (61.8% retracement) opens up the 1.3540 (23.6% retracement) region, with the next area of interest coming in around 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion), which lines up with the 2019-high (1.3665).

Additional Trading Resources

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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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