10:22, 26 September

Bounces off Support at 1.29 Again

The last few weeks have seen the USDCAD drop from recent resistance around 1.32 down to the current key level of 1.29. In doing so, it has bounced solidly off this key level as the buyers have been prepared to jump in again and push the USDCAD a little higher. It was only several weeks ago that the USDCAD surged higher strongly from the support at 1.29 up to reach a six week high just above 1.32. The USDCAD settled a little for around a week right around the 1.32 level. The USDCAD has spent a lot of this year trading roughly around 1.29, therefore, it would have been of little surprise that this level did provide support to the USDCAD again.

Generally, over the last few months, the USDCAD has drifted lower from highs near 1.34. For most of July the USDCAD had been content to consolidate in a narrow range right around 1.32 for several weeks, after surging higher to a new 12 month high near 1.34 towards the end of June, however, it has now left that range. Around mid-April, the USDCAD surged higher for several days moving its way back to the previous resistance level of 1.29, before it ran into a wall of selling. Significantly, this level stood firm for several weeks repelling prices and proving to be a significant obstacle.

On the back of the resistance, the price declined strongly to start the year sending it back below 1.23. Throughout February and into March the USDCAD did very well to rally and return to the former resistance level at 1.29 although it continued higher moving through a little higher to its highest level in eight months above 1.31. The 1.29 level has now well established itself and will likely continue to heavily influence price action.

Several weeks ago, the Bank of Canada (BOC) held its benchmark interest rate steady at 1.50% as it signalled that the outcome of North American Free Trade Agreement (NAFTA) talks could affect the pace of future rate increases. In a brief policy statement, the BOC reiterated its view that higher interest rates will be warranted to keep inflation close to its target of 2%.“The bank is monitoring closely the course of NAFTA negotiations and other trade policy developments, and the impact on the inflation outlook,” the bank said in a statement.“We will continue to take a gradual approach guided by incoming data,” the bank said. The central bank has raised rates four times since mid-2017, most recently in July. It said that recent economic data reinforce its view that higher rates will be needed to keep inflation near the bank’s two per cent target. The bank added that “elevated trade tensions” remain a key risk to the global economy and are already depressing some commodity prices.