USD/CAD slumps after the hawkish BOC interest rate decision

The USD/CAD pair declined after the latest decision by the Bank of Canada (BOC) and the country’s inflation data. It is fell to 1.2552, which was lower than the intraday high of 1.2650.

BOC interest rate decision

The BOC concluded its April monetary policy meeting today. As was widely expected, the bank left interest rate unchanged at 0.25%, where they have been since last year. The bank also decided to pare back some of its asset purchases since the economy is in a recovery path.

Precisely, it decided to slash its weekly quantitative easing policies from C$4 billion to C$3 billion. This makes it the first bank to start tapering these asset purchases. On interest rates, the bank committed to hold them at the current rates for a while to help with the recovery. Before the decision, analysts at ING wrote that:

“The USD/CAD has moved from a material undervaluation in mid-March to overvaluation territory, and the re-rating of Canada’s growth outlook due to new restrictions has surely played a role.”

The BOC rate decision came two hours after Statistics Canada published the latest inflation numbers. The data revealed that consumer prices rose by 0.5% in March. This growth led to a year-on-year gain of 2.2%, higher than the previous 1.1%. The performance was because of the relatively higher oil prices.

The core CPI, on the other hand, rose by 0.3% in March and by 1.3% on a year-on-year basis.

These numbers provide further evidence that the Canadian economy is recovering faster than some of its peers. This is primarily because of the higher oil prices and the ongoing vaccination.

Most importantly, the country has benefited substantially from its close proximity to the United States. In March, the country unveiled a $1.9 trillion stimulus package that will lead to more demand for the country’s goods and services.

USD/CAD technical forecast

After rallying throughout the day, the USD/CAD pair declined sharply after the hawkish BOC interest rate decision. On the four-hour chart, the pair moved to the middle line of the Bollinger Bands while the Average True Range (ATR) spiked.

Therefore, in the near term, the pair may keep falling as bears target the next key support at 1.2475. However, a move above the intraday high of 1.2580 will invalidate this trend.