The Bank of Canada hiked rates 0.25%, as fully expected, however it will not follow through with further rate hikes until such time that it is comfortable with the NAFTA trade talks being out of the way. Also, while the Canadian economy is moving along nicely, the BoC feels that there is still room for some stimulus in order to maintain capacity. Canada is first out of the gates this year to hike rates.
Expect continued volatility, however, the USDCAD looks like it has reached its strongest in the near term.
USDCAD 1.2415, 1.2395, 1.2380 1.2462, 1.2478, 1.2498
EUR-USD came off the boil after posting a 37-month high at 1.2323, subsequently retreating to the lower 1.22s. The dynamic was driven by swings in the dollar today, while a degree of caution about the euro has entered market narratives with some ECB policymakers having expressed concern about the pace of recent gains in the common currency, while concerns remain about the risk of coalition talks in Germany failing. EUR-USD reportedly has sell stop orders clustered around 1.2180-90.
USD-CAD has maintained a consolidation in the mid 1.24s over the last two sessions, in today’s BoC policy meeting and announcement. The pair lifted out of an eight-day low that was seen just under 1.2400 after a short-lived dip yesterday. A broader retreat in the U.S. dollar coupled with Loonie-supporting reports of a possible breakthrough in NAFTA negotiations (Axios reported over the weekend that Trump is softening on it), had been weighing on USD-CAD. Focus will remain on the NAFTA negotiations, with uncertainty about this having curtailed the Canadian dollar rallying amid the surge in oil prices and expectations for the BoC to hike interest rates by 25 bp this Wednesday. USD-CAD has support at 1.2397-1.2400, ahead of trend support at 1.2346-47. Resistance is at 1.2457-60.