USD/CAD Forecast: BOC puts rosy glasses and sent the pair plunging

The BOC left rates unchanged but made significant hawkish changes to the statement.
The USD/CAD is falling sharply but still trades in an uptrend channel.

Yohay Elam FXStreet

The Bank of Canada left the interest rate unchanged at 1.25% as widely expected. However, they made significant changes. The biggest market-movers are in the words they omitted rather than added.

The Ottawa-based institution removed the word "cautious" about raising interest rates. They seem less worried. Also, they removed the wording about the need for monetary policy accommodation. Many central banks maintain these words even as they move away from stimulus. Dropping these words is another bullish sign.

The team led by Stephen Poloz did say that higher rates will be needed. Are they planning to raise rates as soon as July? The speculation is on. Also, they said that inflation would likely be higher in the near term, and cited energy prices.

Among other positive notes, they said that goods exports were more robust than the forecast and that robust wage growth signals housing will pick up this year. In the preview, we discussed the importance of high housing prices in Canada and how the BOC will tackle it.

To top it off, consumption is expected to make a substantial contribution to growth, and even Q1 growth is better than projected. Canada will publish its GDP data tomorrow, and they may be hinting of a better than expected outcome.

All in all, this is a very upbeat statement and surprisingly so given that NAFTA negotiations are somewhat stuck. Canada's Prime Minister Justin Trudeau said that no NAFTA deal is better than a bad one, paraphrasing his British counterpart when referring to a Brexit deal. Do they know something we do not know?

The Canadian Dollar reacted very positively with USD/CAD plunging by over 1% to 1.22865 at the time of writing.

USD/CAD Technical Picture

The USD/CAD is no longer bullish according to the RSI which is hugging the balanced 50 level once again. It was close to 70 a few days ago. Momentum is lacking in either direction. The pair is trading above the 50-day and 200-day Simple Moving Average, indicating that USD/CAD bulls are still here.

The pair is now trading in a broad and moderate uptrend channel, around the middle. The BOC decision sent it further away from uptrend resistance.

Support is close by around 1.2860 which was a stepping stone on the way up. Further support awaits at 1.2805 and 1.2750.

Resistance is at 1.2900, the line just that was just broken, followed by the round level of 1.3000 and 1.3050.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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