11:40, 23 January

Well Supported at 1.32 Since BOC Sat on Rates

In the last couple of weeks the USDCAD has rallied well and higher off the key level of 1.32 which has ably supported the currency pair, moving it to a two week high above 1.3350. It still has some distance to travel if it is to make up the losses from the couple of weeks prior which saw the USDCAD move sharply from an 18 month high above 1.36 down to the key level of 1.32. 
Throughout the last 12 months the 1.32 level has been significant for the currency pair so it wouldn’t have surprised too many to see some buying to support the price and provide some stability. There may be some resistance at 1.34 as this level halted the rise of the USDCAD last month for a couple of weeks before it moved higher.

For several months in the second half of 2018 the 1.32 level was significant repelling prices lower although in November this level was cleared, which then saw the 1.32 level propping up prices. 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 1.36.

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 spent a lot of last 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. The 1.29 level has clearly established itself and will likely continue to heavily influence price action.

The Bank of Canada (BOC) held its benchmark interest rate steady at 1.75% a couple of weeks ago, after it raised interest rates again in October, and after doing so four times since July 2017.  This is despite a few dark clouds appearing on Canada's economic horizon.The 1.75% remains the highest the benchmark interest rate been in a decade, dating back to December 2008.  The central bank has been on a rate rising path attempting to keep inflation in an acceptable range, typically between 1 – 3% annually.  The BOC downgraded its expectations for Canada's economy this year forecasting 1.7% growth, as the heavy fall in the price of oil since October has had a "material impact" on the economy.  The BOC still indicated it plans to raise the rate again sooner rather than later. "The policy interest rate will need to rise over time into a neutral range to achieve the inflation target," the bank said.  "By all of our readings, something like 90 per cent of the economy is operating at capacity, having trouble finding workers, struggling to invest and to grow, and so on.  So we have to pay a lot of attention to that, while at the same time acknowledging that the economy will always have the stresses of some form of something declining," Governor Stephen Poloz said.