USD/CAD retreats after the Bank of Canada interest rate decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Mar 10, 2021
  • The USD/CAD retreated after the latest BOC interest rate decision
  • The bank left interest rate and quantitative easing policy unchanged.
  • The data came shortly after the US consumer inflation data.

The USD/CAD declined slightly after the relatively mixed US inflation data and the Bank of Canada (BOC) interest rate decision. The pair declined to 1.2627, which is 1% below the February high of 1.2750.

USD/CAD
USD/CAD price action

Bank of Canada decision

The BOC, led by Tiff Macklem, concluded its two-day interest rate decision today. As most analysts were expecting, the bank decided to leave interest rate unchanged at 0.25%. The bank also left its quantitative easing policy unchanged but pointed to a slower pace of asset purchases. That’s because the country’s economy is recovering at a faster pace than earlier expected. The bank said:

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“We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s January projection, this does not happen until into 2023.”

The decision came at an important period. The Canadian government is rolling out its vaccine administration faster than expected. Further, the recent lockdowns were less disruptive than the previous ones. This is evidenced by the recent strong Ivey manufacturing and services PMI numbers. 

Most importantly, the US is about to roll-out another $1.9 trillion stimulus package that will have a positive impact on the Canadian economy. Moreover, Canada is one of the biggest US trading partners. This stimulus has pushed more analysts to boost the country’s growth forecast. The median estimate calls for the Canadian economy to expand by 5.4%, which is an increase from January’s estimate of 4%.

The USD/CAD also reacted to the latest US inflation data. The numbers showed that the headline consumer price index (CPI) rose by 1.7% in February. This is just 0.3% below the Fed’s target of 2.0%. The core CPI increased by 1.3% in February. Therefore, with another stimulus package on the way, the rate could continue rising, forcing the Federal Reserve to hike rates. 

USD/CAD outlook

USD/CAD
USD/CAD technical chart

The daily chart shows that the USD/CAD has been in a downward trend recently. It has declined by more than 13% from the highest point in 2020. The pair has also formed a descending channel. It is now slightly below this channel. Also, it is along the middle line of the Bollinger Bands while the two lines of the MACD are below the neutral line. Therefore, the pair may continue falling as bears target the next support at 1.2400.

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