USD/CAD PRICE OUTLOOK: CANADIAN DOLLAR CLIMBS IN RESPONSE TO BANK OF CANADA INTEREST RATE DECISION
- USD/CAD price action probes session lows in immediate response to the latest BoC decision
- Bank of Canada leaves its benchmark interest rate at 0.25% and QE unchanged as expected
- Canadian Dollar strength looks likely to continue largely owing to broad US Dollar weakness
The Canadian Dollar is trading around intraday highs as USD/CAD price action slides in response to the latest BoC interest rate decision. Bank of Canada officials agreed to leave the target overnight rate unchanged at 0.25% and reiterated the current pace of asset purchases at $4-billion per week. The Bank of Canada noted in its press statement how the central bank plans to continue its QE program until the economic recovery is underway, which is still said to need ‘extraordinary support.’ Nevertheless, the BoC pointed out how economic momentum headed into the fourth quarter appears to be better than originally anticipated in October.
USD/CAD PRICE CHART: 15-MINUTE TIME FRAME (08 DEC TO 09 DEC 2020)
This may have helped drive USD/CAD price action down to fresh intraday lows, but the move looks relatively muted overall with the Canadian Dollar stronger by 32-pips against the Greenback and little changed in the wake of the BoC decision. That said, the 1.2775-level stands out as a potential technical support zone aligning with week-to-date lows. The reaction by the Canadian Dollar comes widely expected seeing that the last BoC meeting recalibrated its quantitative easing program in a shift further down the curve, and little change was expected out of the central bank today.
The Bank of Canada also has noted how CAD price action has strengthened recently with crude oil rising to its highest level since early March. I have previously noted the potential for a stronger Canadian Dollar on the back of climbing oil prices. Further, a robust Canadian jobs report released last Friday could encourage a slightly firmer stance by the BoC. Perhaps a more significant driver of recent USD/CAD selling pressure, however, could be broad-based US Dollar weakness helping fuel Loonie strength.
| Change in | Longs | Shorts | OI |
| Daily | 7% | -16% | -7% |
| Weekly | 42% | -24% | -4% |
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
