Top Story

USD/CAD extends drop on hawkish BOC comments

The USD/CAD has taken a sharp drop over the past couple of days. For once, the sharp move hasn’t been because of crude oil. Instead, it was driven by comments made by Bank of Canada officials, suggesting that the central bank was preparing to raise interest rates. First it was BOC Deputy Governor Carolyn Wilkins, who spoke yesterday. She said that as growth continues, the bank’s governing council will be “assessing whether all the considerable monetary policy stimulus presently in place is still required.” In case she wasn’t clear, she had this to add: “Just think about it, if you saw a stop light ahead, you would start letting up on the gas so that you could slow down smoothly. You don’t want to have to slam on the brakes at the last second. Monetary policy must also anticipate the road ahead.” Echoing his deputy’s hawkish comments, BOC Governor Stephen Poloz today said that the past interest rate cuts have largely done their job as the Canadian economy gathers momentum.

So, the long and short of it is that the Bank of Canada appears to have turned hawkish and may tighten its policy in the upcoming meetings. That’s why the CAD has risen. But as I reported earlier, crude oil could fall further and this may limit the gains for the currency. The USD/CAD may not be the best CAD pair to trade/watch ahead of the FOMC meeting tomorrow, but it is fast approaching a key support level around 1.3210. What happens here could have important implications for the trend going forward. A potential breakdown could see the Loonie stage a deeper correction as more bulls are forced to liquidate their positions, while a failure to move lower could lead to a sharp short covering bounce. This 1.3210 level is important because it was previously resistance and corresponds with the bullish trend line. If this level breaks decisively then the USD/CAD may drop to test 1.2970/5 next: an old support and 61.8% Fibonacci retracement level.

Source: eSignal and FOREX.com.

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.