The Canadian loonie halted to its run against the U.S. dollar after significant gains over the past one month despite the Bank of Canada raised interest rates on Wednesday in line with expectation. The Canadian dollar dipped 0.02 percent to 1.24400 per dollar as of 10:38 a.m. in Sydney, remaining flat for the third day.
As expected by the market, the Bank of Canada raised interest rates on Wednesday as job growth and firmer inflation, which is close to the bank’s 2 percent target, outweighed the cloud of NAFTA uncertainty. Taking a cautious tone on the future of the North American Free Trade Agreement as it raised rates for the third time in just seven months, by which taking borrowing costs to their highest level since 2009, the bank accomplished the so-called dovish monetary policy like many analysts had predicted.
Although more rate hikes are probably expected and warranted, some continuous proper monetary policies that maintain optimal growth and inflation will be needed, the bank said, signalling it will not rush to return rates to normalized levels after they were slashed to historic lows in the wake of the financial crisis.
The slight decline in the loonie after the hike is probably because investors realized that markets may have gone too far in pricing in more or faster rate hikes than the bank is contemplating. The rate hike acknowledged that recent data has come in stronger than expected and economy is now running at full potential with almost no output gap.
Technical analysis for the daily chart to look at longer term prospect on USD/CAD, the pair seems to ease to decline further after yesterday’s “cross line” shown with long upper and lower shadows, signalling that the support below should be high. In addition, with the MACD applied, there’s a bullish divergence according to higher lows of the indicator and declining prices.
From the view above, the pair likely to rally over the next few day, while there are barriers bought by Ichimoku cloud ahead and Jan. 11’s high of 1.25893. A failure of breakouts can lead to the pair’s sell-off.
Figure 1: USDCAD Daily
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