10:53, 19 February

Well Supported at 1.32 as Analysts Split on BOC’s Next Move

In the last couple of weeks the USDCAD has traded within a narrow range being ably supported by the current key level of 1.32. Despite an excursion below this level a few weeks ago for a week, the USDCAD has spent the best part of the last six weeks doing not much else than trading above 1.32. A few weeks ago it rallied well and higher off the key level of 1.32 moving it to a two week high above 1.3350 before falling back to 1.32.

It still has some distance to travel if it is to make up the losses from the first week of the year 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. 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.

As central banks around the world shift toward a more dovish interest-rate outlook, analysts are split on what the Bank of Canada (BOC) will do next.  Many traders are expecting and trading based on the BOC doing the same and not raising rates again until at least 2020.However analysts at some institutions argue that the BOC’s confidence in Canada’s economy means it hasn’t shifted to neutral just yet.  “Markets have erred too much on the side of a pessimistic outcome, because outside of the energy economy, things in Canada are not quite as dire as markets seem to be pricing,” said one economist.  “There is an inclination to tighten when the data allows the Bank of Canada.”  However, an expected slowdown in the U.S. and global economies would suggest that Canadian GDP growth will moderate during the year ahead, while the after effect of 2018's fall in oil prices and changes in the domestic housing market will mean inflation also declines in 2019.  "We think the BoC will remain on hold in 2019, as inflation falls below target and growth remains low albeit gradually rising. We expect them to hike again in 2020 Q1 after seeing solid GDP growth in 2019 Q4 and thinking that the economy has recovered from the fall in oil prices, and after seeing that the 12-month change in core prices is finally returning to their target," says Laura Desplans, an economist at UBS.