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USDCAD Soars After Bank of Canada Strikes Dovish Tone

USDCAD Soars After Bank of Canada Strikes Dovish Tone

2019-03-06 15:10:00
Peter Hanks, Junior Analyst

Bank of Canada Talking Points:

  • The Bank of Canada expectedly left its interest rate unchanged, but highlighted greater uncertainty in the rate path forward
  • USDCAD now looks to unemployment data from the US and Canada slated for release on Friday
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USDCAD is pressing higher after the Bank of Canada offered a dovish shift in language in their rate decision report. While the bank expectedly left its interest rate unchanged, dismal GDP numbers last week may have weighed on the bank’s outlook.

The rate decision report highlighted the recent slowdown experienced in the Canadian economy saying, “the fourth quarter slowdown was sharper, more broadly based than forecast.” Consequently, the bank found the economy in the first half of 2019 to be weaker than originally forecast. Together, the downward revisions worked to muddy the rate hike path and the bank noted the change saying there is “increased uncertainty about the timing of future rate increases.”

USDCAD Price Chart: 1-Minute Time Frame (March 6) (Chart 1)

USDCAD price chart

Given the greater uncertainty facing the bank, officials stressed data dependence moving forward. “Uncertainty about the pace of future rate hikes means the bank will be closely watching household spending, oil markets and global trade policy” officials said. The Canadian energy sector will continue to be a pivotal factor in Canadian rate hikes and the Canadian Dollar, as the bank highlighted the impact of cratering oil prices in their last rate decision.

USDCAD Price Chart: 4 – Hour Time Frame (January 2018 – March 2019) (Chart 2)

USDCAD price chart 4-hour

As for the broader outlook of USDCAD, the seemingly dovish tone helped to continue the move off support near 1.3122. After the report, the pair immediately traded higher to the 1.3440 range. Further, the greater uncertainty and data dependence highlighted by the Bank of Canada could provide a tailwind for the USD moving forward as the language is priced in to the market’s expectation of future rate hikes.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: CAD Technical Analysis Overview: USDCAD, EURCAD, CADJPY

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