USD/CAD: Canadian dollar spikes after mild BOC interest rate decision

The USD/CAD pair declined today as traders reacted to higher crude oil prices and the Bank of Canada (BOC) interest rate decision. The pair is trading at 1.3192, which is lower than intraday high of 1.3260.

Bank of Canada leaves rates unchanged

In a statement today, the Bank of Canada left interest rates unchanged at 0.25%. That was in line with what analysts polled by Reuters were expecting. It left the bank rate at 0.50% and the deposit rate at 0.25%.

In addition, the bank is continuing with its quantitative easing (QE) program by purchasing assets worth at least $5 billion a week. For starters, QE is a process in which a central bank prints money and buys assets which include government bonds and exchange traded funds. As a result, the BOC’s balance sheet has increased from $26 billion in March to more than $112 billion. In a statement, the bank said:

“The bank will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. The Bank is continuing its large-scale asset purchase program at the current pace.”

The BOC decision came at a time when the Canadian dollar has been in a steep upward trend against the dollar. The USD/CAD pair dropped from a year-to-date high of 1.4650 in March this year and reached a low of 1.2987 on September 1^st. However, since then, the Canadian dollar has risen by more than 2%.

The meeting also came at a time when Canada is going through its worst economic crisis in decades. The economy contracted by about 11% in the second quarter and by 13% in the first half of the year. The country has also lost almost 10,000 people to the virus.

However, the situation is improving. Recent data showed that the manufacturing and services sectors have started to bounced back. Also, data released yesterday showed that new homes under construction have risen to more than 262,000. That is the fastest pace of growth since the past financial crisis.

In addition to the BOC, the USD/CAD pair has fallen because of higher crude oil prices. The price of Brent and West Texas Intermediate (WTI) have reversed earlier losses and are now up by 0.25% and 0.95%, respectively.

USD/CAD technical outlook

The daily chart above shows that the USD/CAD pair formed a morning star pattern on September 1st. Since then, the pair has moved from the YTD low of 1.3000 to today’s high of 1.3260. The price has moved above the descending channel pattern that is shown in blue. It has also moved above the 25-day exponential moving average and is still below the 50-day EMA. Therefore, even with the day’s decline, the pair is likely to continue rising as bulls target the next resistance level at 1.3300.