Last Wednesday, the Bank of Canada (BoC), headed by Governor Tiff Macklem, cut its key rate by 25 basis points down to 2.5% overnight. This is the first reduction in borrowing costs since March. It came in line with most expert projections and market expectations. Despite current economic weakening and lower inflation risks, the Governing Council decided to take precautionary measures and ease monetary policy, Macklem said.
This step gains more importance, considering that Canada's GDP and employment have been struggling because of US import tariffs. BoC officials also pointed to heightening risks of economic pressure, including a probable deterioration of the labor market. They also said that Prime Minister Mark Carney's elimination of retaliatory duties on imports of some American goods removed one potential inflationary factor.
Moreover, Macklem noted that US tariffs have become more stable in recent weeks, suggesting a decrease in short-term uncertainty. However, the upcoming revision of the US-Mexico-Canada Agreement (USMCA) is stealing all the market's attention. Thus, the Canadian dollar has more potential to drop than its American counterpart, as the Fed remains rather hawkish, supporting the USDCAD pair in the short run.
The overall recommendation is to buy USDCAD. Take profit should be placed at the level of 1.38800. Stop Loss could be set at 1.37000.
The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
