Top Story

USD/CAD surges as Canadian dollar slides on BoC statement

As the US dollar continued to rebound on Wednesday, the Canadian dollar fell sharply after the Bank of Canada issued its latest interest rate decision and statement. The central bank kept its overnight rate on hold at 1.00%, as widely expected, but also issued a statement that was seen as more dovish than expected given the recent series of relatively strong economic data releases out of Canada. In its statement, the BoC continued to stress caution amid risks and uncertainties. Despite rising inflation, higher GDP, and stronger employment indicators, the statement asserted that “the global outlook remains subject to considerable uncertainty, notably about geopolitical developments and trade policies,” and that the "Governing Council will continue to be cautious."

Meanwhile, as the Canadian dollar fell on perceived dovishness from the BoC statement, the US dollar, as noted, continued to rise in its recent rebound that has been driven largely by progress in US tax reform. Together, the continued US dollar rebound and BoC-driven fall for the Canadian dollar prompted a substantial USD/CAD surge from a key support area on Wednesday.

From a technical perspective, USD/CAD has generally traded in a range for more than a month below its 200-day moving average. This range-trading has occurred within the context of a general rebound from multi-year lows that started in early September. Having now bounced from the range-bottom support (around the 1.2650 price region), USD/CAD is currently reaching up towards its range highs (slightly above the 1.2900 handle).

With US tax reform still making progress towards realization and the US Federal Reserve preparing for a very likely rate hike during next week’s FOMC meeting, current policy divergence between the US and Canada could result in further impending gains for USD/CAD, potentially extending its noted recovery from September lows. In this event, the key upside breakout level to watch continues to be the 1.2900-area highs, with any further rise potentially meeting major resistance around the key 1.3000 psychological level.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.