The Bank of Canada increases by 50 basis points, as expected; USD/CAD initially lower
The Bank of Canada (BOC) raised rates by 50 basis points, as expected. This is the biggest increase in the overnight rate in 20 years. The policy rate is now at 1%, its highest level since the start of the pandemic in March 2020. In addition, the BOC said it would stop reinvesting the proceeds of its maturing bonds from April 25. .and, ending its quantitative easing program. The central bank said it will have to raise interest rates to neutral or above neutral due to the expected rise in inflation.
USD/CAD initially sold off on the statement as traders expected further interest rate hikes. The price was very volatile in the first 15 minutes of trading after the release, trading between 1.2625 and 1.2675.
Source: commercial view. Peter X
On a daily basis, USD/CAD has been trading in a range between 1.2453 and 1.2964 since mid-November 2021. April 5and, the price tested the low of the range and formed a hammer candlestick, indicating the possibility of a reversal. Indeed, the price reversed and rose. The price hasn’t looked back since. Over the past 3 days, the price broke through several key resistance levels. These include:
- Horizontal resistance at 1.2604
- The 200-day moving average at 1.2622
- The ascending trendline dating from June 1st at 1.2640
- The 50% retracement of the move from the March 8 highsand April 5 lowand at 1.2647
- The 50-day moving average at 1.2660
Source: Tradingview, Pierre X
Given the pullback after today’s BOC statement release, this puts the price in a current range between 1.2604 and 1.2660. If the price rises outside the range, the first resistance is at the March 8 61.8% Fibonacci retracement.and peaks on April 5and lower at 1.2705. Above, the price may rise and test the March 8 highsand at 1.2901, then the highs of December 20, 2021 at 1.2665. However, if the price breaks below 1.2604, the horizontal support is at 1.2540. Below, support is at the bottom of the recent range at 1.2454 and then April 5and hammer low at 1.2402.
The Bank of Canada raised rates by 50 basis points today to bring the key rate down to 1% and said it will have to raise more. Currently, the USD/CAD is caught in an area between 1.2604 and 1.2660. The breakout of this zone could provide the markets with information on the next direction that the USD/CAD could take!