The BoC overnight only raised interest rates by 50bp to 3.75%, below market expectations of 75bp. Bank rate and deposit rate were 4.00% and 3.75% respectively. The central bank maintained its tightening bias and noted that the policy rate needs to rise further.
In the new economic projections, GDP growth was lowered from 3.5% to 3.3% in 2022, from 1.8% to 0.9% in 2023, and from 2.4% to 2.0% in 2024. The CPI inflation forecast was also lowered from 7.2% to 6.9% in 2022, from 4.6% to 4.1% in 2023, and from 2.3% to 2.2% in 2024.
During the press conference, Governor Macklem said that the central bank is getting closer to the end of tightening but not there yet. In addition, he noted that the BoC is still far from its target of low, stable, and predictable inflation. Macklem was noncommittal in terms of where Monetary Policy is headed next. Therefore, traders should pay close attention to the data to determine where the price is headed next.
Technical Overview
Technically, on the intraday period the USDCAD pair formed a rounding top format. Rounding tops are generally found at the end of an extended uptrend and may signal a reversal of long-term price movement. But is it working this time?
In the last 5 weeks the price of this pair has been trading between 1.3502 – 1.3976. And there has been no catalyst to push the pair out of this range. The market seems a bit disappointed with the BOC’s decision, as seen by the price’s acceleration to the upside, after the interest rate announcement which came in below expectations. However, rising oil prices might contribute to the strengthening of the Canadian Dollar.
A price move below 1.3502 support could result in some bullish trend correction to test the ascending trendline drawn from the August-September low around 1.3300. As long as the 1.3502 support holds, consolidation will likely still prevail. Currently, the price is still moving below the 26- and 52-period EMA on the H4 period, and the price bias tends to be neutral at the moment.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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