Buy USDCAD amid positive statements from the Bank of Canada

Bank of Canada Governor Tiff Macklem said on Tuesday more time was needed for monetary policy to ease price pressures.

"We can see monetary policy is working to bring down inflation and we need to give monetary policy more time to ease the remaining price pressures," he said during a speech at the Montreal Council of Foreign Relations.

Canada's central bank has increased its key overnight rate 10 times in 17 months to a 22-year high of 5%. It has held the rate constant for its last four meetings. The next policy announcement is in March.

While this has helped ease inflation from a high of 8.1% in June 2022 to 3.4% in December, the path to its 2% target has been slow.

Canada's acute housing shortfall has driven up the cost of buying or renting a property in Canada, and Macklem said shelter costs were now the biggest contributor to above-target inflation.

"Housing affordability is a significant problem in Canada, but it can’t be fixed by raising or lowering interest rates," he said.

"The Bank of Canada seems to be positioning itself for a rate cut in the second quarter, even if inflation is still hovering around 3%," said Tiago Figueiredo, an economist at Desjardins Group.

Canadian market participants have fully priced in a rate cut by the Bank of Canada in July, while expectations for a rate cut in April have been hovering around 43%.

Macklem said that the central bank cannot ignore housing costs, which are in part driven by high interest rates, and that the goal is to bring down "total consumer price inflation."

"As inflation comes down, we gain more assurance that we are headed back to the 2% target, and then we can talk about lowering interest rates," he told reporters after the speech.

The short-term US inflation growth impulses, which support the US dollar, create good short-term conditions for buying USDCAD pair.

The final recommendation is to buy USDCAD. The profit could be fixed at the level of 1.3620.

The loss — at the level of 1.3270.