USD/CAD Rebounds From Session Lows As BoC Raises The Rate By 50 Bps

Key Insights

• The surprising decision of the BoC put pressure on the Canadian dollar. 
• EUR/USD rebounded above the psychologically important 1.0000 level. 
• The recent election of Rishi Sunak as UK PM continued to provide support to GBP/USD. 

USD/CAD Gained Ground After BoC Interest Rate Decision

USD/CAD rallied after the BoC raised the interest rate from 3.25% to 3.75%, compared to analyst consensus of 4.00%. The bank stated that it would continue its quantitative tightening program.

The BoC noted: “The effects of recent policy rate increases by the Bank are becoming evident in interest-sensitive areas of the economy: housing activity has retreated sharply, and spending by households and businesses is softening.”

This is an interesting note from the BoC as similar thoughts may also impact Fed’s decision-making. In the near term, the BoC decision is bearish for the Canadian dollar, as the market expected that the interest rate would be increased by 75 bps.

USD/CAD needs to settle above the 20 EMA at 1.3660 to continue its rebound. RSI is in the moderate territory, so there is plenty of room to gain additional upside momentum. A move above the 20 EMA will signal that USD/CAD will try to move closer to the recent highs near the 1.3800 level.

Meanwhile, other commodity-related currencies are moving higher amid a broad rebound in commodity markets. AUD/USD has recently made an attempt to settle above 0.6500, while NZD/USD tested the 0.5800 level.

U.S. Dollar Remains Under Strong Pressure As Treasury Yields Move Lower

U.S. Dollar Index has recently made an attempt to settle below the 110 level as traders remained focused on falling Treasury yields. The yield of 10-year Treasuries is currently trying to get below the psychologically important 4.00% level.

Bond traders bet that the Fed will be forced to be less hawkish as high interest rates put significant pressure on the economy. According to the data from Mortgage Bankers Association, the average rate on a 30-year fixed-rate mortgage increased to 7.16% for the week ended October 21.

The recent housing market reports showed that consumer activity and prices continued to move lower. New Home Sales declined by 10.9% month-over-month in September as high interest rates put pressure on potential buyers.

The continuation of the current trend in mortgage rates will put additional pressure on the market and may lead to a crisis. If the Fed signals that it is worried about the impact of higher interest rates, the U.S. dollar will find itself under more pressure.

EUR/USD Settled Above 1.0000

EUR/USD settled above the 1.0000 level and made an attempt to settle above 1.0050 as the rebound continued.

Traders continue to prepare for the ECB Interest Rate Decision, which will be released tomorrow. The market expects that the ECB will be hawkish as it needs to put pressure on inflation amid a severe energy crisis in the Eurozone.

GBP/USD Continues To Rebound

GBP/USD is trying to settle above the 1.1600 level as traders remain optimistic about future actions of the new Prime Minister.

Rishi Sunak delayed the announcement of the new financial plan until November 17. This decision did not put pressure on the UK debt market, and the yield of 10-year UK government bonds tested new lows near 3.55%.

Traders hope that Rishi Sunak will bring the much-needed conservatism to the decision-making process. In the near term, GBP/USD may enjoy more support.

USD/JPY Dropped Towards 146.50

USD/JPY continues to move lower as bulls exit their positions after a series of interventions from the BoJ.

Currently, USD/JPY is trying to settle below the 146.50 level. In case this attempt is successful, USD/JPY will move towards the next support level at 145.50.

For a look at all of today’s economic events, check out our economic calendar.