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USD/CAD: All Eyes on the Bank of Canada’s Rate Decision

The USD/CAD is up 0.47% as the greenback gains traction over its peers this Monday. However, the gains appear capped as the bulls on the loonie hinge their bets on the record low unemployment rate despite a shortfall in jobs additions and the expectation of a 50 bps rate hike by the Bank of Canada (BoC).

The backdrop of tomorrow’s meeting and Wednesday’s decision is the willingness of the Bank of Canada to do what is necessary to maintain its 2% inflation target. The markets are continuing to bet on the US Federal Reserve ramping up rates by 75bps, given some of the recent Fedspeak and the language in the FOMC’s minutes. Therefore, the USD/CAD’s price trajectory going into August may be defined by the extent to which the apex banks on both sides of the northern border decide to push rates. 

Therefore, a 50bps rate hike by the BoC and expectations of a 75bps hike by the Fed on 28 June could undermine any gains the loonie made on Friday from its jobs report, leading to a further advance in the USD/CAD. However, a 75bps hike or more will promote a pullback from recent tops. 

USD/CAD Forecast

The 1.30774 resistance (12 May and 5 July highs) remains the price to beat for the bulls. A break of this resistance opens the door towards the 1.31346 resistance as the initial target: the 16 September 2020 low and 16 November 2020 high point. An advance beyond this level targets the 1.32655 barrier (17 August 2020 high) before 1.34297 (1 October 2020 high) enters the picture as the additional target to the north.

On the flip side, the beats must reject the price advance of the day at the 1.29884 resistance (13 May and 21 June 2022 highs) to challenge the support at 1.29241. A breakdown of this support level makes 1.28679 available as the next downside target. This pivot can be viewed as the neckline of the emerging 17 June/5 July double top. A breakdown of this pivot completes the pattern and points to 1.26477 as the completion point of the measured move. The 1.27419 support is the potential pitstop along the way before this area is hit. 1.25964 and 1.25255 (7 June low) are other pivots that enter the mix on a further price deterioration.  

USD/CAD: Daily Chart