The USDCAD moved lower after the Bank of Canada rate decision as the response was a hawkish cut.
BOCs Macklem said at his press conference that they considered both 25 and 50 basis rate cuts before finally deciding on a 50 bps reduction. That the decision was driven by two main factors:
- the need to leave a limited policy area and
- economic data points to a softer GDP growth outlook compared to October estimates.
Lower immigration targets have been cited as a factor behind slower-than-expected growth, while the potential for tariffs on Canadian exports adds to the uncertainty, although the bank stressed that they can base a policy on speculative risks.
He admitted that the economy is still oversupplied with soft signs, but the widespread job losses that are typical in a recession have not occurred. The weakness of the Canadian dollar has largely come from the strength of the US dollar and must be factored into future forecasts.
While further rate cuts are possible, the pace is likely to be more gradual compared to the recent 50 bps reductions, with decisions being made on a meeting-by-meet basis. Although there is a slowdown in the labor market, consumer spending has been stronger than expected, and a downturn in the spring housing market remains a major risk.
Markets currently expect a moderate path for further cuts, with end-2025 rates projected between 2.50% and 2.75%, although actual results will depend on incoming data.
Technically, the run to the side fell below two targets defined before the decision
- The 1.4145 level was a swing level going back to November 26, and
- The rising 100-hour MA (blue line on the chart below). That moving average is currently higher at 1.41328.
However, the next major targets that need to be broken to be serious about selling were falling short between 1.40889 and 1.41045. The price reached a low of 1.4119 before bouncing.
The bounce higher has now brought the USDCAD price back above the 100-hour MA and the 1.4145 swing level.
Buyers are in control back above these levels with traders targeting the 2024 high at 1.41774. A move above that level and the high from yesterday and today would be centered on 1.4193.
