As expected, the Bank of Canada leaves the overnight rate unchanged at 5.0%. However, the bank left room for additional rate hikes to tame inflation in the next two years.
Bank Of Canada Monetary Policy Review
After ten interest rate increases since March of the prior year, the central bank has likely completed its upward rate adjustments, with rates remaining at a 22-year high of 5.0 percent for at least six months. This consensus is based on a poll of economists conducted by Reuters and released last Friday.
As per the Bank’s projection, the inflation may return to the 2.% target level by the end of 2025. However, the short-term projection is unsupportive due to the higher energy prices and core data.
The bank expects inflation to reach around 2.5% in the second half of 2025, with the annualized GDP to reach 0.8% in the third and fourth quarters of 2023. Also, the Bank projected the growth for 2024 to come down to 0.9%, down from the 1.2% previously forecasted level.
In the currency market, no significant movement was seen in CAD-related pairs after the news release. However, the ongoing conflict in the Middle East with upward pressure on Crude Oil could be a bullish factor for CAD.
On the other hand, the safe-haven nature of the US Dollar with a rebound in the treasury yield could limit the gain for USD CAD bears.
USDCAD Technical Analysis
In the daily chart of USD/CAD, the current bullish pressure since the September low came with a corrective volatile structure within a rising wedge pattern. As bulls are losing momentum, investors might see a sharp downside pressure, depending on the price action.
The current price is still bullish as the dynamic 20 EMA is below the price with an upward slope. Also, the Relative Strength Index (RSI) is at 67.00 level with a bullish signal from the positive MACD Histogram. The latest high volume level is also below the current price, which signals an active buying pressure.
On the bearish side, a bullish over extension toward the 1.3889 Fibonacci level with a proper bearish rejection could be a short opportunity. However, the current market pressure is bullish, where 1.3889 would be the primary target. A solid daily candle above the target level could advance the price toward the 1.4000 psychological level.