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USD/CAD Holds Narrow Range Ahead of Bank of Canada (BoC) Comments

USD/CAD Holds Narrow Range Ahead of Bank of Canada (BoC) Comments

David Song, Strategist

Canadian Dollar Talking Points

USD/CAD holds a narrow range as Bank of Canada (BoC) Governor Stephen Poloz is slated to speak at the Greater Victoria Chamber of Commerce, and the fresh batch of central bank rhetoric may sway the near-term outlook for the dollar-loonie exchange rate as market participants weigh the outlook for monetary policy.

Image of daily change for major currencies

USD/CAD Holds Narrow Range Ahead of Bank of Canada (BoC) Comments

Image of daily change for USDCAD

The updates to Canada’s Consumer Price Index (CPI) may push the BoC to adopt a more gradual approach in normalizing monetary policy as it falls short of expectations, and Governor Poloz may attempt to tame expectations for an imminent rate-hike as ‘the Bank will continue to assess the economy’s sensitivity to interest rate movements and the evolution of economic capacity.’

However, the BoC appears to be on track to implement higher borrowing-costs over the coming months as ‘developments since April further reinforce Governing Council’s view that higher interest rates will be warranted to keep inflation near target,’ and the central bank may continue to prepare Canadian households and businesses for a less accommodative stance as ‘core measures of inflation remain near 2 per cent, consistent with an economy operating close to potential.

As a result, a slew of hawkish comments may trigger a pullback in USD/CAD, with the pair at risk of exhibiting a more bearish behavior over the coming days especially as the Relative Strength Index (RSI) flashes a textbook sell-signal and slips below 70.

USD/CAD Daily Chart

Image of USDCAD daily chart
  • Keep in mind, the broader outlook for USD/CAD remains constructive as the pair rallies to fresh 2018 highs, with the Relative Strength Index (RSI) extending the bullish formation from May, but the failed attempt to test the 1.3420 (78.6% retracement) to 1.3460 (61.8% retracement) region may lead to a near-term correction in the exchange rate.
  • First downside hurdle comes in around the former-resistance zone around 1.3130 (61.8% retracement) followed by the Fibonacci overlap around 1.2980 (61.8% retracement) to 1.3030 (50% expansion), with the next area of interest coming in around 1.2830 (38.2% retracement).

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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.