USD/CAD Testing Three-Week Low Ahead of BOC Rate Decision

The Canadian Dollar is trading higher on Wednesday after poor U.S. economic data earlier in the week reinforced speculation that the U.S. Federal Reserve will slow its interest rate hikes, weakening its U.S. counterpart. Additional pressure is coming from the anticipation of another supersized Bank of Canada (BOC) rate hike later today.

At 10:50 GMT, the USD/CAD is trading 1.3456, down 0.0061 or -0.45%. On Tuesday, the Invesco CurrencyShares Canadian Dollar Trust ETF (FXC) settled at $71.85, up $0.53 or +0.74%.

BOC Set to Supersize its Rate Hike Despite Growing Recession Fears

The Bank of Canada is widely expected to raise rates by another three-quarters of a percentage point to a fresh 14-year high, as stubbornly broad and persistent inflation outweighs worries that the rapid pace of tightening will trigger a recession, Reuters wrote.

Five of Canada’s six largest banks are forecasting 75-basis point hikes to 4.0% after inflation data last week came in hotter than forecast, with one instead calling for a 50-bp move when the decision is released at 14:00 GMT.

The BOC will also release updated economic projections, which are expected to show a far dimmer outlook for both the Canadian and global economies, along with some hints of improvement on the inflation front.

Will BOC Follow Fed’s Anticipated Path?

Canadian Dollar traders will be pouring over today’s BOC monetary policy statement to determine if policymakers are planning on following the Fed’s widely speculated path smaller rate hikes in the future. This would mean a supersized rate hike today, followed by a smaller rate hike at its next meeting on December 7.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower. A trade through 1.3503 will change the main trend to down. A move through 1.3977 will reaffirm the uptrend.

The minor trend is down. This is controlling the downside momentum. A trade through 1.3855 will shift momentum to the upside.

On the upside, the nearest resistance is a long-term Fibonacci level at 1.3652. On the downside, the support is a pair of 50% levels at 1.3465 and 1.3338.

Daily Swing Chart Technical Forecast

Trader reaction to 1.3607 is likely to determine the direction of the USD/CAD on Wednesday.

Bearish Scenario

A sustained move under 1.3607 will indicate the presence of sellers. This could create the momentum needed to take out 1.3503, changing the main trend to down.

A move through 1.3503 should extend the down move into 1.3465 where the selling should stall. However, if this level fails then look for a further decline into 1.3338.

Bullish Scenario

A sustained move over 1.3607 will signal the presence of buyers. If this move creates enough upside momentum then look for a test of the major resistance at 1.3652.

Sellers could show up on a test of 1.3652, but overtaking it could trigger an acceleration to the upside.