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USD/CAD: Canadian Dollar Forecast Post-BOC Emergency Rate Cut

USD/CAD: Canadian Dollar Forecast Post-BOC Emergency Rate Cut

2020-03-28 06:00:00
Rich Dvorak, Analyst
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CANADIAN DOLLAR FORECAST: USD/CAD PRICE OUTLOOK STILL BULLISH AS LOONIE REBOUND CLASHES WITH LOWER OIL & BOC RATE CUT

  • USD/CAD falls from four-year highs as the Canadian Dollar attempts to recover recent downside
  • The Bank of Canada slashed its target overnight interest rate to 0.25% with an emergency 50-bps cut to offset economic turmoil caused by COVID-19
  • The Canadian Dollar could come back under pressure alongside crude oil if sentiment starts to sour again

In our prior Canadian Dollar forecast, we noted how emergency monetary policy action by the Bank of Canada, or BOC, could be warranted. Surely enough, BOC Governor Poloz and the Governing Council delivered a shock 0.5% interest rate cut early Friday to “provide support to the Canadian financial system and to the economy during the COVID-19 pandemic.” Erratic price action in USD/CAD ensued after the latest emergency BOC rate cut, but the Canadian Dollar appreciated about 2% on balance over the last week as the Loonie bounces back against its USD peer.

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USD/CAD PRICE CHART: DAILY TIME FRAME (DECEMBER 2019 TO MARCH 2020)

USDCAD Price Chart Canadian Dollar Forecast Technical Analysis

USD/CAD is currently perched slightly below the 1.400 handle – roughly aligning with the 38.2% Fibonacci retracement of its year-to-date trading range and mid-point of the 20-day, 2-standard deviation Bollinger Band. Although this area of support has potential to keep spot USD/CAD price action anchored, Loonie bulls could look to the 1.3800 mark as the Canadian Dollar rebounds from a four-year low relative to its US Dollar peer.

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This technical level is underpinned by a confluence of intraday highs and lows recorded earlier this month. If selling pressure persists, which is a likely possibility considering the bearish MACD crossover, buoyancy might be found near the 50-day exponential moving average.

USD/CAD PRICE CHART WITH CRUDE OIL & VIX INDEX OVERLAID: DAILY TIME FRAME (OCTOBER 2019 TO MARCH 2020)

USDCAD Price Chart Canadian Dollar Forecast

Chart created by @RichDvorakFX with TradingView

That said, while crude oil drives lower and the VIX snaps back, spot USD/CAD price action may quickly resume its topside breakout. This is considering the generally strong direct relationship held between the US Dollar and volatility as well as the Canadian Dollar and crude oil.

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Also, with the Bank of Canada admittedly at its effective lower bound, and a recession likely unavoidable amid virus fallout, the lack of monetary policy ammunition to support the Canadian economy could pressure the Loonie.

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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