HomeNewsUSD/CAD Softer as BOC Hikes Rates 75bp
USD/CAD Softer as BOC Hikes Rates 75bp

USD/CAD Softer as BOC Hikes Rates 75bp

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USD/CAD registered a small loss in Wednesday’s session, dropping from 1.3208 to 1.3104, after the Bank of Canada raised benchmark rates by 75 basis-points.

It was all about USD strength during the first half of the trading day. The US dollar index was firmer, with the greenback printing 24-year highs against the yen and a 37-high versus the British pound. As a result, USD/CAD came close to equaling the 2-year high of 1.3223, recorded in July.

However, the Canadian dollar firmed after the BoC lifted the benchmark borrowing cost to 3.25%. As such, Canadian interest are now the highest among developed economies. The policy statement following the decision prepared the market for more of the same in the coming months, “the policy rate will need to rise further.”

Despite the BoC being seen as ahead of the curve, USD/CAD is up around 3.5% year-to-date. The reason is less to do with CAD weakness and more about US dollar strength. The greenback’s strength this year is acting like a vacuum, pulling in capital from emerging and European economies. As a result, even well performing currencies are losing ground the US dollar. That being said, USD/CAD is having a hard time clearing the 1.3200 level, which could indicate a near-term low for the Canadian dollar.

US Dollar to Canadian Dollar Forecast

The daily chart highlights the rising trend channel that has dictated USD/CAD’s price action for the last year. Notably, the recent rally stumbled at the top end of the range, just above 1.3200. Furthermore, the Relative Strength Index (RSI) is rolling over, suggesting the bullish momentum is waning.

Taking the above into account, we may see some speculative USD/CAD selling emerge. If this plays out as expected, a return towards the psychological big figure of 1.3000 is likely.

The danger to the bearish call is the packed data slate later today. First up is the ECB’s interest rate decision and policy statement. Next comes the US initial jobless claims, followed by a statement from FOMC chair Jerome Powell. Should any of these events put a bid under the dollar, USD/CAD could react higher. With this in mind, a close above the trend resistance at 1.3214 flips the near-term view to bullish.

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USD/CAD Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.