USDCAD Finds Support After Hawkish Comments by BOC Macklem

The USD to CAD exchange rate continued its upward trajectory early in the week, after breaking above the ascending channel earlier this month and reaching 1.2847 on Wednesday, buoyed by Canada’s mild inflation data. But the price reversed in the second half of the week, sending the price more than 100 pips lower.

USD/CAD Chart H4 – The 50 SMA Is Now Acting As Support

At the end of the week, the Canadian Dollar seems to be the strongest, ending higher against the USD, which in turn ended higher against most other major currencies. USD/CAD retreated further on Friday, but the 50 SMA (yellow) held as support, with BOC’s Macklem helping as well, after he made some dovish comments.

The Bank of Canada (BoC) opted to maintain its benchmark interest rate at 5.00% in the last meeting as anticipated. However, the central bank adjusted its language in the statement, indicating reduced concern about inflation and hinting at a potential rate cut in June if the trend persists.

While the latest Canadian Consumer Price Index (CPI) met expectations in March, underlying inflation indicators declined further. This has led the market to anticipate the possibility of the BoC implementing its first interest rate cut in June and comments from the BOC president Macklem on Friday confirmed this view.

C0mments from Bank of Canada’s Macklem

• The federal budget appears to have maintained the fiscal track since the November 2023 fall economic statement, with spending measures and new taxes. The government’s commitment to fiscal guard rails is seen as helpful.
• The Bank will closely monitor evidence to determine if the recent downward momentum in inflation is sustained. Canadian inflation is becoming less broad-based, which is seen as a positive development.
• While there are signs of stress in household finance, particularly among non-mortgage holders, delinquencies have increased but remain below alarming levels.
• Geopolitical tensions are a significant concern internationally, which could impact economic dynamics.
• Any spike in oil prices will be taken into account, as it could have implications for monetary policy considerations.

USD/CAD Live Chart