Home Forex Market Analysis USDCAD Outlook Following Bank of Canada Interest Rate Decision

USDCAD Outlook Following Bank of Canada Interest Rate Decision

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USDCAD Outlook Following Bank of Canada Interest Rate Decision

The USDCAD pair is hovering around 1.27175. This is a 1.10% price decline from its highest December price of 1.28518. This is a considerable recovery from the pair’s lowest price this month which was at 1.26201. The low price can be attributed to the US uncertainty caused by the COVID-19 omicron variant and the anticipated Bank of Canada (BoC) interest rate decision.

Bank of Canada interest rate decision

The BoC on Wednesday decided to keep the interest rates at 0.25%. This is similar to where the rates were in January during the early days of the COVID-19 pandemic. The Bank will continue on a reinvestment phase while keeping the overall holdings of Canada’s bonds at a constant. It also said that it is not planning on hiking the interest rates until April and September 2022. This was negative for the CAD.

On the other hand, the BoC also warned that the hike in the cost of living is likely to continue into 2022. This can be attributed to the increase in demand for goods as economies open up and the inability of the supply sector to satisfy this demand. However, it indicated that it was not yet ready to pull its key lever to handle inflation. The rate of inflation rose to a pandemic high of 4.7% in October. The BoC said that the high inflation is expected to continue throughout the first half of next year. This was bearish for the CAD. The inflation rate is, however, projected to ease to 2.1% by the end of 2022.

US data

In the US, the Job Openings and Labor Turnover Survey (JOLTS) recorded a reading of 11.033M, which was better than the projected 10.369M. This was also higher than the previous 10.602M, which was bullish for the greenback. The initial jobless claims also declined from 227K to 184K —  better than the anticipated 215K. This was positive for the USD. Additionally, the US unemployment rate also dropped from 4.6% to 4.2%, also lower than the anticipated 4.5%. 

The Institute of Supply Management (ISM) Non-Manufacturing Purchasing Managers’ Index (PMI) recorded a reading of 69.1 —  that, for a change, was better than the projected 65.0. It was also higher than the previous 66.7 level. This was bullish for the buck.

Moreover, during Fed Chair Jerome Powell’s testimony, he said that the Federal Reserve is going to consider a quick action on the low-interest rates to tackle the high inflation rate. The Fed started reducing its monthly bond purchases, which are planned to end in June 2022. Powell indicated that the officials would discuss in the next meeting tapering the bond purchases a bit faster. This will enable the Fed to start raising short-term rates in the first half of 2022. This was bullish for the USD.

USDCAD technical analysis

The four-hour chart below shows that a bullish trend has been emerging in the past few days. This has seen the pair move above the 25-day Moving Average and is likely to cross above the 50-day Moving Average in the near term. The RSI has also continued to rise, and it’s currently above 50, which indicates a bullish trend. 

The USDCAD price chart

The pair has also moved above 38.2% Fibonacci retracement level. Therefore, the USDCAD pair is likely to keep rising, and investors will be looking out for the next key level at 23.6% Fibonacci retracement level, which is at 1.27565 price level. However, a move below the 1.26407 key support level will invalidate the bullish trend.  

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