09:44, 14 December

Eases from 18 Month High above 1.34 after BOC Sits

The last couple of weeks have seen the USDCAD move sharply up to an 18 month high above 1.34 although in the last week it has eased a little. For several months of this year the 1.32 level was significant repelling prices lower although earlier last month this level was cleared, which then saw the 1.32 level propping up prices. Should the USDCAD continue its decline, it is likely the 1.32 level will continue to support prices having been a resistance level for as long as it was. The other key level although a little more distant is the well-established 1.29 level which has supported the currency pair well in the last few months.

Generally over the last 12 months the USDCAD has moved well from lows near 1.22 up to recent highs above 1.34. 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 which reinforced the significance of these two levels. 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. 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.

After the Bank of Canada (BOC) raised interest rates again in October, after doing so four times since July 2017, the BOC held its benchmark interest rate steady at 1.75% last week. This remains the highest the benchmark interest rate been in almost a decade, dating back to December 2008.  In a statement explaining the rate decision, the central bank said interest rates will need to rise to a neutral range, currently estimated around 2.5% to 3.5%, to keep inflation on track. They also said that the pace of future rate rises will depend on several factors including developments in global trade policy and the effect of higher rates on consumption and housing.  The BOC noted signs are emerging “that trade conflicts are weighing more heavily on global demand” and acknowledged there is less momentum in the Canadian economy going into the fourth quarter.  The central bank also said that low oil prices and slowing economic momentum prompted officials to strike a more cautious tone, which then cast fresh doubts on the chances of a rate increase in January.  “The persistence of the oil price shock, the evolution of business investment, and the bank’s assessment of the economy’s capacity will also factor importantly into our decisions about the future stance of monetary policy,” the Bank of Canada statement said.