The USD/CAD has burst higher today on the dovish Bank of Canada (BoC) monetary policy statement. Compared to this morning’s price, USD/CAD trades more than 100 pips higher.
Fundamental analysis: BoC unexpectedly dovish
Bank of Canada left its key policy rate unchanged at 1.75% at its January policy meeting. However, the BoC surprised investors and analysts with a more dovish statement on monetary policy.
“Sharp escalations of Middle East tensions could have a significant effect on the economy. The total impact of trade tensions expected to cut global GDP by 1.2% by the end of 2021, down from 1.3% forecast in October,” the bank said in the statement.
Analysts see the statement as dovish as the bank has opened the door for a future rate cut due to a slowdown in the Canadian economy. As stated, the economy no longer operates close to capacity, and further slowdown may make the BoC cut rates earlier than previously anticipated.
These are three key takeaway messages from the statement that sent the loonie (USD/CAD) higher.
“Data for Canada indicate that growth in the near term will be weaker, and the output gap wider, than the Bank projected in October.”
“Looking ahead, Canadian business investment and exports are expected to contribute modestly to growth, supported by stronger global activity and demand.”
“In determining the future path for the Bank’s policy interest rate, Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast.”
Technical analysis: Approaching important resistance
This morning, the USD/CAD traded around the $1.3040 mark in a ranging session, as investors anticipated the outcome of the BoC meeting. Seconds after the announcement, the USD/CAD skyrocketed higher on more dovish policy statement.
The initial move higher pushed the price action through the intra-day resistance of $1.3100, as well as the 200-DMA at $1.3070. The bulls are now approaching the key short-term resistance at $1.3160, where the two-year ascending trend line (the orange line) and the 100-WMA intersect.
A break of the key resistance area would be absolutely huge for the confidence of the bulls. The next layer of resistance is located at $1.3235, should investors persist with buying the USD/CAD in the coming days. The $1.3100 handle provides short-term support for any potential pull back.
USD/CAD has moved abruptly higher on the more-dovish-than-expected monetary policy statement. The bulls are now approaching the key resistance zone around $1.3160.