Eyes off Resistance at 1.32 after BOC Raises Rates
The last few weeks have seen the USDCAD move sharply in both directions, reaching a two week high around 1.3080 before falling sharply to a four-month low below 1.28. In the last few days, it has reversed strongly again and surged higher towards 1.3150 threatening to return and challenge the resistance at the key 1.32 level. A few weeks ago the USDCAD eased lower, however, enjoyed support again from the well-established 1.29 level allowing it to climb higher, which again proves how key that level is for the currency pair. On several occasions in the last couple of months, the USDCAD has bounced solidly off this key level as the buyers were prepared to jump in again and push the USDCAD higher. At the end of August, the USDCAD surged higher strongly from the support at 1.29 up to reach a six week high just above 1.32.
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 and why it remains a key level. 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. The 1.29 level has clearly established itself and will likely continue to heavily influence price action.
As widely expected the Bank of Canada (BOC) raised interest rates again last week, after doing so four times since July 2017. The bank's benchmark interest rate is now set at 1.75%, which is the highest it's been in almost a decade, dating back to December 2008. Many economists are expecting a few more rate rises to come, but the central bank hinted that it wants to see how current rates are affecting the economy before proceeding."In determining the appropriate pace of rate increases, [the bank] will continue to take into account how the economy is adjusting to higher interest rates, given the elevated level of household debt," the bank said."The reality is that the economy is at its capacity and is no longer needing stimulus," central bank governor Stephen Poloz said at a news conference following the announcement. "And so it's our job to prevent the thing from overheating and creating inflation pressures down the road."Importantly, its statement dropped references to taking a "gradual approach" and added language about the need to bring rates to levels that are no longer expansionary.