- The USD/CAD pair rose ahead of the Bank of Canada interest rate decision.
- Analysts expect the bank to leave interest rates and QE unchanged.
- It is also reacting to the falling crude oil prices.
The USD/CAD price is up by 0.55% as traders react to low crude oil price ahead of the Bank of Canada (BOC) interest rate decision. The pair is trading at 1.3250, which is the highest it has been since October 15.
Crude oil price slides
Canada is the fourth-biggest crude oil producer after the United States, Saudi Arabia, and Russia. The country produces more than 5.9 million barrels every day. It consumes about 2.2 million barrels every day and exports the rest. Also, the sector employs millions of people directly and indirectly.
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These factors make the Canadian dollar highly-sensitive to global crude oil prices. And today, the price of oil is in a sharp downward trend. West Texas Intermediate (WTI) has fallen by 4.65% to $37.75. On the other hand, Brent, the international benchmark, has dropped by 3.75% to $40. In total, the price has dropped by more than ~10% in the past two weeks.
This decline is because of the rising number of Covid-19 cases around the world. In the United States, the number of infections has risen by more than 500k in the past week. Similarly, the number has risen in more countries, including Canada, Norway, Germany, and France.
The impact of this is that demand will continue falling as countries implement another round of restrictions. Also, air transport, which is a major consumer of oil will take time to recover since countries like Norway have started mandating quarantines. At the same time, OPEC and other producers have not signalled whether they will slash production.
Bank of Canada rate decision
The USD/CAD price is rising a few hours ahead of the October Bank of Canada (BOC) interest rate decision. Analysts polled by Reuters and Bloomberg expect the bank to leave interest rates unchanged at 0.25%. Also, they expect the governor to signal that rates will remain at the current levels for longer since he has ruled out against negative rates.
Analysts also expect that the bank will commit to more quantitative easing to support the economy. It is accomplishing this by buying government bonds worth more than $3.8 billion every week.
These measures have helped the Canadian economy recover faster than its peers. For example, while the American economy contracted by more than 30% in the second quarter, Canada weakened by just 13%.
However, the situation is changing, with the decline of oil prices. Also, Moody’s and UBS Bank have warned that the housing market will see falling prices in the near term.
USD/CAD technical outlook
The four-hour chart shows that the USD/CAD price has risen from a low of 1.3100 to the current high of 1.3260. The price has also moved above the October high of 1.3245. It has also risen above the 50-day and 25-day exponential moving averages. Notably, it is also along the second resistance level of the standard pivot. Therefore, I expect the price to fall back to the first resistance at 1.3190 after the BOC decision.