USD/CAD steady around 1.2670s after BoC and Fed hawkish hold

• European equities rise, while US futures point to a higher open, reflecting an upbeat market.
• The Loonie holds its ground versus the greenback, which marches firmly with its DXY above 97.00, the first time since July 2020.
• USD/CAD upward biased, as long as the spot remains above the 100 and the 200-DMA.

As the North American session begins, the USD/CAD barely advances after two hawkish holds by the Bank of Canada and the Federal Reserve. At the time of writing, the USD/CAD is trading at 1.2661, up 0.01%. Risk sentiment is upbeat, portrayed by European equity indices trading in the green, while US futures point to a higher open.

The BoC and the Fed delivered a “hawkish” hold

On Wednesday, the Bank of Canada (BoC) and the Federal Reserve (Fed) held their first monetary policy meeting of 2022. 

The BoC was the first to hit the stage, which held the overnight rate at 0.25%, as widely expected. However, the Canadian central bank noted that economic slack “has been absorbed,” signaling that a March hike could be possible. 

Analysts at TD securities mentioned that “while today’s decision came as a surprise, it does not change our conviction that rates are headed to 1.00% by mid-2022. Furthermore, upcoming meetings are now live for balance sheet runoff with the updated guidance.”

Meanwhile, the Fed kept rates unchanged at the 0 to 0.25% range later in the day. However, it emphasized the need to normalize the economy and noted that the central bank might raise interest rates “soon.” Although the monetary policy statement fell short of hawkishness, Fed’s Chair Powell press conference underpinned the greenback and sent stocks in a free fall.

Powell said that “…the committee is of a mind to raise the federal funds rate at the March meeting assuming that the conditions are appropriate for doing so.”

In the meantime, the US Dollar Index, a gauge of the greenback’s value versus a basket of six rivals, rallies 1.26%, sitting at 97.156, a level last reached on July 7, 2020, underpinned by rising US T-bond yields, with the 10-year note sitting at 1.814%.

Despite broad US dollar strength across the board, the CAD has been able to cap any upwards move, due to higher crude oil prices, with Western Texas Intermediate (WTI) rising 1%, trading at $88.22.

The US economic docket featured Initial Jobless Claims for the week ending on January 22, fell to 260K from 286K in the previous week, showing the labor market’s resilience after two consecutive weeks of increases. Meanwhile, the Gross Domestic Product (GDP) for Q4 rose by 6.9%, crushing 5.5% expectations.

USD/CAD Price Forecast: Technical outlook

The USD/CAD daily chart depicts the upward bias of the pair. The longer time-frame daily moving averages (DMAs) reside below the spot price, while the 50-DMA is at 1.2708, acting as resistance. The Relative Strength Index (RSI), an oscillator that marks overbought/sold conditions, is at 51, aiming higher, supporting the bullish bias.

To the upside, the first resistance would be the aforementioned 50-DMA at 1.2708. A breach of the latter would expose the January 6 cycle high at 1.2813.