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USD/CAD Unable to Reverse the Trend, Despite BOC Holding Rates at 5.00%

USD/CAD has been declining for more than a month, after failing to properly break the resistance zone around 1.39. Buyers were challenging the highs in early November, but the USD weakness resumed and this pair reversed sharply. Despite the decline in crude Oil price which should have pulled the CAD down with it, the CAD has been benefiting from improved risk sentiment, and this forex pair continues to remain bearish.

USD/CAD Daily Chart – The Larger Trend Remains Bullish

Sellers remain in charge as MAs turn into resistance

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We saw a rebound early this month as the USD regained some ground, but USD/CAD remains bearish overall and vulnerable to negative risks. So, buyers have to put a stronger effort to push the price above 1.3600-1.3650 and above the 200 SMA (purple) on the H1 chart for the outlook to change. On the chart above, moving averages have been acting as resistance, with the 200 SMA holding twice since yesterday.

USD/CAD H1 Chart – MAs Have Turned Into Resistance

The downtrend continues since early November 

The Bank of Canada held its meeting a while ago, and they kept interest rates at 5.00% as expected. There were no comments about rate cuts, but markets are convinced that the BOK is done with raising rates and is pricing in a 20% possibility of an interest rate cut in January. A March cut is still priced in at 90%, which is almost a done deal.

Bank of Canada (BOC) Policy Decision and Statement Highlights

  • Policy Rate:
  • Bank of Canada holds rates at 5.00%, as expected
  • Prior rate: 5.00%.
  • Monetary Policy Outlook:
  • BOC is prepared to raise the policy rate further if needed.
  • Data suggests the economy is no longer in excess demand.
  • Impact of Monetary Policy:
  • Monetary policy is moderating spending and relieving price pressures.
  • The economic slowdown is reducing inflationary pressures across a range of goods and services.
  • Core Inflation:
  • The Governing Council wants to see further and sustained easing in core inflation.
  • Global Economic Conditions:
  • The global economy continues to slow, and inflation has eased further.
  • US growth has been stronger than expected but is expected to weaken.
  • Growth in the euro area has weakened.
  • Oil Prices and Exchange Rates:
  • Oil prices are about $10-per-barrel lower than assumed in the October Monetary Policy Report (MPR).
  • The US dollar has weakened against most currencies, including Canada’s.
  • Impact of Higher Interest Rates:
  • Higher interest rates are restraining spending, with consumption growth in the last two quarters close to zero.
  • Labour Market:
  • The labour market continues to ease, with job creation slower than labor force growth.
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Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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