The USDCAD rocketed higher in what is seen as a short term reversal of the trend, something that has been promised over the last week or so ever since the
The USDCAD rocketed higher in what is seen as a short term reversal of the trend, something that has been promised over the last week or so ever since the data from Canada turned out to be weaker than expected and also we had the BOC Governor Poloz saying that he did not have a timeline for the next rate hike. This gave an inkling to the market that the next rate hike this year was not a done deal after all and so it had to scale back its positions.
After the hawkish BOC announcements over the last couple of months, the market had been lulled into complacency and into thinking that the next rate hike was only a couple of months away but yesterday, the market was broought back into reality as the BOC held rates and in the accompanying statement and press conference, made it pretty much clear that there would not be any rate hike for this year and for a large part of 2018 as well.
They laid down the guidelines that would determine their rate decision and made it clear that they were still very far off the targets for the economy to be able to sustain another rate hike. This kind of firm message made it clear that there were no further hikes in the horizon and this disappointment led to a sell off of the CAD which helped the USDCAD through 1.27 and through 1.28 as well and it trades just below this region as it appears only to be a matter of time before the pair move towards 1.30.
The signs of such a statement from the BOC had been there many weeks before but the market, as is usual, got ahead of itself during this period in the hope that the BOC would continue to be hawkish. This was the reason for the sell off when it became clear that the market was wrong in its assumption. During the course of today, we do not have any major news from Canada or the US and so we can expect the pair to continue to move higher and aim for 1.30 in the short term.
Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.