The USDCAD currency pair continues to move within the medium-term uptrend from the December lows. Bulls are actively testing the important level of 1.36. In case of its breakout the way to new five-month highs will be open. Both fundamental and technical factors speak in favor of further rise in quotes. The next target for USDCAD buyers is 1.366, and today's events may contribute to its quick achievement.
On Wednesday, the Bank of Canada (BOC) will hold its second monetary policy meeting in 2024. The market participants are betting that the BOC will keep the key rate unchanged at the level of 5%. The main intrigue lies in the rhetoric of the regulator's representatives regarding further steps. The majority of traders currently predict the first interest rate cut in April or June, but there are preconditions in favor of an earlier term.
Statistics on business activity in the Canadian services sector continues to indicate stagnation. The PMI increased from 45.8 to 46.6 points, but remains below the key 50 level for 8 months in a row. Paul Smith from S&P Global Market Intelligence noted the continued decline in business activity, characterized by lower production and new orders. In his opinion, without easing monetary policy, Canadian business will not be able to reverse the negative trend.
Economists polled by Reuters believe that the earlier decrease in interest rates is possible with a tighter fiscal policy. In the first nine months of the current fiscal year, the federal budget deficit quadrupled to 23.6 billion Canadian dollars. At the end of the entire fiscal year, the deficit is expected to reach 47 billion. At the same time, Canadian Finance Minister Chrystia Freeland said she would limit the deficit for the next fiscal year to 40 billion Canadian dollars. This will increase the chances of rapid easing of monetary policy.
Despite the stable growth of USDCAD quotes, the RSI indicator is still far from the overbought levels. This fact speaks in favor of further upward movement to the level of 1.366.
The following trading strategy can be suggested:
Buy USDCAD in the range of 1.358–1.36. Take profit — 1.366. Stop loss — 1.354.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
