- USD/CAD is still down on the week, down 0.48% so far.
- The Bank of Canada raised rates and laid the groundwork for further hikes.
- The US ISM Manufacturing for May surprised to the upside, while price pressures have eased.
The USD/CAD is rising on Wednesday despite a negative knee reaction to the Bank of Canada’s decision to raise the overnight rate by 50 basis points, raising it to the 1.50% threshold. However, USD/CAD was quick to recover and has risen to 1.2663, snapping a five-day losing streak, amid a dismal market environment, with global equities down, both factors more supportive of the USD. .
USD/CAD dipped to a daily low near 1.2600
The BoC raised rates by 0.50% against the backdrop of high global inflation, fueled by soaring energy prices courtesy of Russia’s invasion of Ukraine, China’s Covid-19 related lockdowns and ongoing disruptions. of supply. The BoC stressed that the war “increased uncertainty and put further upward pressure on energy and agricultural commodity prices.”
As for Canada’s outlook, the BoC mentioned that Canada’s CPI, which was around 6.8% y/y in April, is likely to move higher in the short term before showing signs of easing. The central bank pointed out that inflation continues to widen, which means that inflation has no other path than to rise. The BoC Governing Council added that interest rates would have to continue to rise and that the central bank’s assessment would guide the pace of hikes. The BoC said it is prepared “to act more forcefully if necessary to meet its commitment to hit the 2% inflation target.”
market reaction
The 1 hour chart of the USD/CAD shows that the pair oscillated in a range of 44 pips, between 1.2600-44, with the simple moving average (SMA) of 20 periods at 1.2644, where it found sellers that stopped the price. USD/CAD bullish reaction. To the downside, the USD/CAD found a bottom and the buying pressure lifted the pair around 1.2600, so that is the key support level for the currency in the short term.
Elsewhere, the US ISM Manufacturing PMI for May was released, surprisingly rising to 56.1 in May, from 55.4 in April and beating market forecasts of 54.5. New orders, production and inventories all saw increases, while price pressures eased for a second month, from 82.2 to 84.6.
USD/CAD Price Forecast: Technical Outlook
Overall, USD/CAD remains under pressure, but USD/CAD buyers are pushing the pair above the 200-day moving average (DMA) which is at 1.2659. However, it should be noted that although they are lifting the major towards 1.2700, solid top levels are in sight around 1.2700.
If USD/CAD hits 1.2700, its first line of resistance would be the 100 DMA at 1.2695. A break above it would send the pair towards the 50 DMA at 1.2708, followed by the May 27 high at 1.2783.
On the other hand, the first support for the USD/CAD would be the 200 DMA. A break of the latter would expose the lower Bollinger Band at 1.2607.
Technical levels
Source: Fx Street
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