March 26, 2023
BoC and Oil sent the Loonie deeper!
Hot Forex Review

BoC and Oil sent the Loonie deeper!

On Wednesday, the Bank of Canada held its monetary policy and interest rate decision meeting. After eight straight months of rate hikes totaling 425 basis points, interest rates rose to 4.5%; this pause was read as a signal of the end of contractionary policies by market participants. As the first major Central bank, BoC ended the rate hike cycle with no change in its current rates at 4.5%, as was widely expected.

The main reasons for this decision could be inflation and GDP numbers. The Q4 2022 GDP numbers released last week confirm the slowing economic growth, while annual inflation in Canada, which soared as high as 8.1% last year, slowed to 5.9% in January. BoC policymakers pointed out that rates can stay at the current levels as long as inflation does not restrict to expected levels. The Bank of Canada’s inflation forecast for the middle of this year is 3%.

While BoC’s decision decreased the Loonie demand, Oil prices also eased and increased the pressures on Canadain Dollar to lift USD/CAD further to the 1.38 level for the first time since October last year. On the other hand, with US labor market data and Fed chair Powell’s comment in his testimony in front of the Senate, we expect more demand for the US dollar. So, while fundamental data favored USDCAD bulls, the technical chart remains bullish, with 1.3549 as an important support. Above the current level, the following targets will be 1.3980 and 1.4120.

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