The USDCAD soared more than 80 pips this afternoon after the Bank of Canada (BoC) issued a dovish rate statement following the 1.75% hold. The Bank of Canada noted that Canada’s economic growth could experience a slowdown in the latter half of the year. Exports and investment are expected to contract, before recovery over the period of 2020 -2021.
The Bank of Canada also highlighted that there was indeed a global economic slowdown which could affect the country. The BoC also notes that it would monitor the extent of spread of the global slowdown beyond the investment and manufacturing sectors, and would use the information in determining its monetary policy outlook.
These highlights are a departure from the previous two rate statements which were quite hawkish. The dovish surprise was therefore interpreted to be CAD-negative, putting the USDCAD on bid.
The CAD also suffered from the EIA’s crude oil inventories which showed that crude stockpiles were up by 5.7 million barrels last week, as against the consensus figure of 0.5 million barrels.
Outlook for the USDCAD
The next big data for the pair would have to be the FOMC interest rate decision and statement later today. Having breached the 1.3135 resistance level (R2 pivot and September 10 low/October 21 high), price is inching towards the next resistance level at 1.3171 (R3 pivot and October 11 low in role reversal).
1.3225 (38.2% Fibonacci retracement from May 31 swing high to July 19 swing low) or even 1.3286 (50% retracement) could be the next upside targets if the FOMC’s rate statement is deemed USD-positive.
To the downside, rejection at 1.3169 (R3 pivot) could lead to a retreat to 1.31351 (R2 pivot) or even lower to previous lows at 1.3076, especially if the FOMC’s call is deemed USD-negative.