Canadian dollar slides post-BoC

The Canadian dollar has posted sharp losses on Wednesday. In the European session, USD/CAD is trading at 1.3132, up 1.18%.

BoC shocks with 100bp salvo

The Bank of Canada has been in an aggressive mode, but nobody was expecting the massive 100bp hike on Wednesday, the largest rate increase in 24 years. The markets had priced in a 75bp move, and the Canadian dollar responded with modest gains. The cash rate now stands at 2.5%.

The massive increase shows that the BoC is pulling out all the stops in order to curb hot inflation, which has hit 7.7%, a 39-year high. The BoC is well aware that over-tightening could tip the economy into a recession, but this is the price to pay to ensure that inflation does not become entrenched through wage gains and price increases. Consumers and businesses are expecting high inflation to persist, and this can become a self-fulfilling prophesy and lead to even higher inflation.

Along with the huge rate hike, the BoC had some grim news. The central bank raised its inflation forecast, which is expected to hit 8 per cent in the second and third quarters of this year. Growth is forecast to fall to 3.5% this year, down from 4.2% previously.

The Canadian dollar wasn’t able to hold onto yesterday’s gains and has dropped sharply today. Investors remain risk-averse after the US inflation report, as headline CPI jumped to 9.1% YoY, up from 8.8%. Core CPI dropped a notch from 6.0% to 5.9% but this didn’t ease the disappointment that the inflation peak remains as elusive as ever. The inflation report has dramatically elevated the likelihood of a massive 100bp, which according to the CME’s FedWatch stands at 84% – less than a week ago, the likelihood of a 100bp move was a mere 7%.

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USD/CAD Technical

  • USD/CAD has broken above resistance at 1.3068 and 1.3129. Above, there is resistance at 1.3199
  • There is support at 1.2953 and 1.2822

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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