USD/CAD Headed for Fresh 1 Month Lows

USD/CAD Headed for Fresh 1 Month Lows

USD/CAD Headed for Fresh 1 Month Lows

After today’s Bank of Canada monetary policy announcement, USD/CAD is headed for fresh 1 month lows. Investors bought Canadian dollars aggressively after the Bank of Canada left interest rates unchanged. While back-to-back rate cuts was unlikely, most investors expected the BoC to maintain a dovish bias and leave the door open to additional easing. However, the central bank described inflation risks as more balance, called the current degree of stimulus appropriate and said that crude prices and Q4 growth are close to expectations. These comments indicate that the central bank has shifted to neutral and is no longer looking to lower interest rates. It is for this reason and not just their decision to keep rates steady today that has driven the Canadian dollar sharply higher. The rebound in oil prices also helped lift the currency. While USD/CAD has yet to break out of its 1.2350 to 1.2700 range, we believe that it should only be a matter time before support gives way.

Taking a look at the daily chart of USD/CAD, there is a clear descending triangle. A break below 1.2350 support would open the door for a move down to 1.2120, the 23.6% Fibonacci retracement of the 2007 to 2009 rally. If 1.2350 holds, the resistance is near 1.26.

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