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USD/CAD Rate Fails to Test October High Again Ahead of BoC Meeting

USD/CAD Rate Fails to Test October High Again Ahead of BoC Meeting

2019-12-04 03:00:00
David Song, Currency Strategist
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Canadian Dollar Talking Points

USD/CAD appears to be stuck in a narrow range ahead of the Bank of Canada (BoC) interest rate decision, but the series of failed attempts to test the October high (1.3348) may generate a near-term correction as the exchange rate continues to track the price action from the third quarter.

USD/CAD Rate Fails to Test October High Again Ahead of BoC Meeting

USD/CAD struggles to extend the advance from the October low (1.3042) as US President Donald Trump tweets “the Fed should lower rates,” with the Commander in Chief going onto say that the “Dollar is very strong relative to others.”

President Trump may continue to press the Federal Reserve to deliver lower interest rates amid the weakening outlook for global growth, but recent remarks from Chairman Jerome Powell and Co. suggest the central bank will take a break from its rate easing cycle as officials see “the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth.”

Image of Fed Fund futures

In turn, Fed Fund futures continue to reflect a greater than 90% probability the Federal Open Market Committee (FOMC) will retain the current policy on December 11, and the central bank may tame speculation for an imminent rate cut as Fed officials emphasize that “the Committee would continue to monitor the implications of incoming information for the economic outlook as it assessed the appropriate path of the target range for the federal funds rate.

It remains to be seen if the FOMC will continue to respond to the shift in trade policy as the Trump administration struggles to reach a trade deal with China, and Chairman Powell and Co. may come under pressure to further insulate the economy in 2020 as the US mulls higher tariffs for Europe.

At the same time, the Bank of Canada (BoC) appears to be in no rush to alter the course for monetary policy as Governor Stephen Poloz and Co. insists that “the current degree of monetary policy stimulus remains appropriate.”

Image of Bank of Canada interest rate

In turn, the BoC may stick to the same script at its last meeting for 2019, and the central bank may largely endorse a wait-and-see approach for the foreseeable future as “the Bank projects real GDP will grow by 1.5 percent this year, 1.7 percent in 2020 and 1.8 percent in 2021.”

With that said, more of the same from the BoC may keep USD/CAD within the range-bound price action from the third quarter as the FOMC shows a greater willingness to take a break from its rate easing cycle.

As a result, the string of failed attempts to test the October high (1.3348) may bring the downside targets back on the radar, and the Relative Strength Index (RSI) may offer a bearish signal as it threatens the upward trend from earlier this month.

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USD/CAD Rate Daily Chart

Image of USD/CAD rate daily chart

Source: Trading View

  • Keep in mind, the rebound from the 2019 low (1.3016) has failed to generate a test of the Fibonacci overlap around 1.3410 (38.2% expansion) to 1.3420 (78.6% retracement), with USD/CAD largely tracking sideways as it remains stuck in the range bounce price action from the third quarter.
  • At the same time, the flattening slopes in the 50-Day (1.3219) and 200-Day SMA (1.3279) warn of range-bound conditions as the moving averages look poised to converge with one another.
  • More recently, USD/CAD appears to have marked a string of failed attempts to test the October high (1.3348), and lack of momentum to break/close above the Fibonacci overlap around 1.3280 (23.6% expansion) to 1.3330 (38.2% retracement) may spur a move towards the 1.3220 (50% retracement) region.
  • The next area of interest comes in around 1.3120 (61.8% retracement) to 1.3130 (61.8% retracement) followed by the 1.3030 (50% expansion) region, which largely lines up with the 2019 low (1.3016).
  • Will keep a close eye on the Relative Strength Index (RSI) as it comes up against trendline support, and the oscillator may offer a bearish signal if it snaps the upward trend carried over from the previous month.

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--- Written by David Song, Currency Strategist

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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