In today’s meeting, Bank of Canada (BoC) left its interest rate unchanged, in line with expectations. It seems that overall approach of the BoC is wait-and-see, especially with respect to future hikes.
The statement notes that policy accommodation will still be needed in order to keep inflation on target while the Bank will continue to monitor economy’s sensitivity to higher interest rates. In regards to projections, the Bank has cut Q1 GDP forecast to 1.3% from 2.5%, sees Q2 GDP at 2.5% while raising potential output growth to 1.8% in 2018-2020 period and 1.9% in 2021. In addition, the 2018 growth has been trimmed to 2.0% from 2.2% while for 2019 growth is boosted to 2.1% from the original 1.6%.
USD/CAD rose on the headline from 1.2550 to 1.2630 as the CAD hawks were not impressed with the content of the report. However, be caution since the price has already retreated 30 pips or so. As it can be seen in the chart below, the pair has moved way above H1 100MA and touched 200 MA. In addition to the 200MA resistance on the hourly chart, the price has almost reached 38.2% Fibonacci retracement of the big leg down. If it is able to close above 1.26 tonight, we expect another leg higher to test at least 50% or even key 61.8% Fibonacci level. The diagonal trend line, currently at 1.2730, will also act as an obstacle for bulls.
All in all, our advice is to wait for the price to settle down before entering any trade.