The USDCAD is trading higher after the Bank of Canada (BoC) cut interest rates by 50pbs this afternoon, citing weakening economic conditions due to the coronavirus outbreak. The interest rate now stands at 1.25%.
Excerpts from the BoC’s rate statement are provided below.
“While Canada’s economy has been operating close to potential with inflation on target, the COVID-19 virus is a material negative shock to the Canadian and global outlooks, and monetary and fiscal authorities are responding”.
“COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted. This has pulled down commodity prices and the Canadian Dollar has depreciated”.
“It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity”.
“It is becoming clear that the first quarter of 2020 will be weaker than the Bank had expected…in light of all these developments, the outlook is clearly weaker now than it was in January”.
The BoC says it will continue to monitor economic and financial conditions along with other G7 central banks. The BoC’s Governing Council also says it is ready to make further adjustments monetary policy if required to grow the economy and keep inflation on track.
The BoC is the 3rd G7 central bank to cut rates this week, which also follows rate cuts by the PBoC and the Hong Kong Central Bank.
The Canadian Dollar weakened immediately following the interest rate cut, allowing the USDCAD to jump to 1.34166 as at the time of writing (88.9 pips and counting). This price move is blowing open a path towards the next resistance at 1.34328; a price high previously seen on 6th and 18th June 2019 and 2 March 2020. If price can take out this level, then 1.35000 and 1.35231 (24 April and 31 May 2019 highs) will become viable price targets.
However, if the price meets resistance at 1.34328 and stalls at that level, then a brief pullback towards the 1.33821 price level (previous lows of 29 April and 10 May 2019) could be on the cards. Below this level, 1.33487 becomes new support as role reversal kicks in.