CAD/USD Technical Analysis: BoC Governor Press Release after 5% Interest Rate
On Wednesday, the Canadian Dollar (CAD) gained significant strength compared to the US Dollar (USD). This happened following a 0.25% hike in interest rates by the Bank of Canada (BoC).
CAD/USD gained more strength due to the announcement, following the release of US inflation data earlier in the day.
The data indicated a slowdown in both headline and core measures of inflation, which posted negative implications for the greenback. Meanwhile, the next important event for the trading pair is BoC Governor Tiff Macklem’s speech, where he said the following.
- Higher interest rates are needed to cool the economy and bring down inflation.
- The labour market is still tight, but there are some signs that it is starting to ease.
- The Bank of Canada is prepared to raise interest rates further if necessary.
- If we don’t act now, we may have to take more drastic measures later.
- The Governing Council considered keeping rates unchanged but decided that the cost of inaction was too high.
- With the recent increases in the policy rate, we expect inflation to gradually return to our 2% target
During the US session, the USD/CAD exchange rate is now in the 1.31 range, showing a decrease of 0.5% compared to the previous day.
Factors Influencing the Movement of the Canadian Dollar
The Canadian dollar rose after the Bank of Canada raised interest rates by 5% on Wednesday. The central bank increased its key interest rate, known as the overnight rate, to 5.00% from 4.75%. The bank also raised the bank rate to 5.25% and the deposit rate to 5.00%. The rate hike is likely to have several implications for the Canadian economy. It will make it more expensive for businesses to borrow money, which could lead to slower economic growth. It will also make it more expensive for consumers to borrow money, which could dampen spending.
However, the rate hike is also likely to help to cool inflation. As the cost of borrowing money rises, businesses will be less likely to raise prices, and consumers will be less likely to spend as much money. This could help to bring inflation back down to the central bank’s target.
The Bank of Canada also revised its inflation forecast and believes it will stay high for a while longer before it starts to come down. The bank forecasts that inflation will be around 3% for the next year, and then it will gradually decline to 2% in the middle of 2025. This is a slower return to target than the bank had forecast in January and April.
Meanwhile, CAD strengthened yesterday and today in the wake of a softening US Dollar following the release of data showing slowed inflation in the United States. In addition, the annual headline CPI came in at 3.0%, below the 3.1% forecast and well below the 4.0% rate at the same time last year.
Technical Analysis
The CAD/USD pair is currently in a neutral trend. There are more buy signals than sell signals, but the RSI is also close to 50, which is the halfway point between overbought and oversold. The 6-month gains are also relatively small, which suggests that the pair is not in a strong uptrend.
Overall, the technical analysis suggests that the CAD/USD pair is likely to continue to trade in a range shortly. However, there is a slight bias towards the upside, as there are more buy signals than sell signals.
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