USD/CAD: Canadian dollar slumps to 2018 lows after BOC decision
- The USD/CAD dropped to the lowest level since 2018 after the Bank of Canada delivered its rate decisision.
- The central bank left interest rate and quantitative easing policies unchanged.
- The higher price of crude oil also helped push the Canadian dollar higher.
The USD/CAD dropped to a multi-year low of 1.2778 after the Bank of Canada delivered its final interest rate decision of the year. The relatively higher oil prices also helped.
Bank of Canada interest rate decision
In a statement, the Bank of Canada decided to leave interest rates unchanged at 0.25% today. This was in line with the overall expectation among that forex investors and analysts. It was also in line with the previous guidance of the central bank.
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In addition to rates, the bank left its quantitative easing policies intact. It will continue buying at least c$4 billion worth of bonds through 2021. This makes it the biggest holder of the Canadian government bonds.
The interest rate decision came at an important time for the Canadian economy. The Canadian dollar has soared to the highest level since May 2018 in part due to a weaker dollar. This is putting the country’s exporters to a disadvantage.
At the same time, the number of Covid cases in the country has continued to soar, raising concerns of a significant slowdown in the fourth quarter.
Meanwhile, the government has continued to borrow extensively in its bid to support the economy. This year alone, the budget deficit is expected to be about 20% of the total economy.
The USD/CAD is also falling because of the overall higher crude oil prices. Today, the price of Brent and West Texas Intermediate (WTI) are up by more than 0.50% as they approach the important level of $50. This is partly because of the optimism about a Covid vaccine and the recent decision by OPEC+ to gradually increase production
USD/CAD technical analysis
The USD/CAD has been on a sharp downward trend after it reached the year-to-date high of 1.4670. At the current price of 1.2778, the pair has fallen by 12.87%. On the daily chart, it is below the 25-day and 50-day exponential moving averages. It is also below the important descending trendline that’s shown in green.
Most importantly, the average directional movement index (ADX) has risen to a September high of 30. As you can read in our free forex trading courses, this is a sign of the strength of the downward trend.
The Relative Strength Index, which is a popular oscillator, has also dropped to a low of 28, which is a signal that it is getting oversold.
Therefore, while the downward trend will possibly continue, there is a possibility of a bullish reversal in the next few weeks.