Even a rate hike by the Bank of Canada does not guarantee a decline in USDCAD

07 June 2023 176
Even a rate hike by the Bank of Canada does not guarantee a decline in USDCAD

The USDCAD currency pair is getting closer to the minimums of the last month. Over the last two weeks, the Canadian dollar has strengthened significantly against the U.S. dollar. However, such a sharp decline in the USDCAD has already led to an oversold state in the technical indicators. A rebound upwards is coming, and the events of the current day could be a trigger for it.

 

The Bank of Canada will have its 4th monetary policy meeting of the year today. There was a rather unusual situation in the market: the forecasts of raising interest rates and maintaining them at the current level of 4.5% are almost equally divided. The reason is mixed statistics that do not give a clear understanding of the current state and prospects for the development of the Canadian economy.

 

On the one hand, the current rate of GDP growth and steady inflation point to the need for higher interest rates. But at the same time the significantly worsened business activity indices prevent additional tightening of monetary policy. Due to the high uncertainty, today's trading in USDCAD and other currency pairs involving the Canadian dollar is likely to be quite volatile.

 

Yesterday's move by Australian officials may also be an argument supporting the 0.25% rate hike by the Bank of Canada. However, it should be noted that the current meeting of the Canadian regulator is not the base one. This means that there will be no updated forecasts for economic growth, inflation and interest rates. A pause combined with more "hawkish" rhetoric seems more reasonable for Bank of Canada officials. And the real changes in monetary policy will be seen in July.

 

The USDCAD pair is gradually approaching the range of 1.333-1.336, which has been stopping all downward impulses since the middle of February. Considering the oversold signals from the Stochastic indicator, a corrective rebound upwards should be expected in coming days. The growth target may be the level of 1.345.

 

 

The following trading strategy option can be suggested:

 

Buy USDCAD in a range of 1.333-1.336. Take profit – 1.345. Stop loss – 1.33.

 

Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.

This content is for informational purposes only and is not intended to be investing advice.

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