USDCAD Continues the Retreat After Neutral BOC Rate Comments

Today, the USD to CAD rate dropped below 1.37, extending its upward trajectory following yesterday's FOMC reversal.

Written by: Skerdian Meta • Thursday, May 2, 2024 • 2 min read

• Last updated: Thursday, May 2, 2024

Today, the USD to CAD rate dropped below 1.37, extending its upward trajectory following yesterday’s FOMC reversal. On Tuesday, we witnessed a 100-pip surge in USD/CAD, propelled by underwhelming Canadian GDP figures and robust US employment earnings, pushing the pair up by 1 cent. However, the Fed changed its stance yesterday, and today, the BOC is making some not-so-dovish remarks, which are seen as hawkish, given the fact that the BOC hinted at the start of a rate cut period in the last meeting, but I assume they’re following the FED.

USD/CAD Chart Daily – Returning Back Dow to the 20 SMA

Earlier this week, the USD/CAD increased by 100 pips, but it retraced its gains after the FOMC meeting and press conference. Despite experiencing fluctuating volatility, the pair found support yesterday within a cluster of technical levels, including the 200-hour moving average and the 100-hour moving average around 1.37. These levels held as support yesterday, prompting us to initiate a buy signal for USD/CAD. But the decline continues today, with the price falling below 1.37.

BOCs Macklem Testifying Before the House of Commons Standing Committee

There’s a limit to how much US and Canadian interest rates can differ.
However, we are currently not close to reaching that limit.
When questioned about when rates might decrease, he emphasizes that the BOC is seeking assurance that the recent decline in underlying inflation will persist.
Canadian inflation is expected to remain around 2.9% for the next few months, partly due to gasoline prices. Rates are unlikely to return to pre-Covid levels.
He reiterates that any interest rate reductions would likely follow a gradual path.
The central bank could begin cutting rates before inflation reaches 2%, emphasizing the importance of observing a sustainable decline in inflation.
If the federal carbon tax were eliminated, inflation would initially drop for a year before returning to its expected trajectory.
If interest rate cuts were to weaken the Canadian dollar, this factor would be taken into consideration when determining the extent of rate reductions.

USD/CAD Live Chart

USD/CAD

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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.