The Bank of Canada raise rates by 50 basis points which was as expected to 1.5% from 1.0%. The headlines from the statement:
- Inflation likely move even higher in the near term before beginning to ease
- The risk of elevated inflation becoming entrenched has risen
- Ukraine war is dampening the outlook, particularly in Europe
- Canadian economic activity is strong and the economy is clearly operating in excess demand
- companies are reporting widespread labour shortages
- Housing market activity is moderating from exceptionally high levels
- growth in the second quarter is expected to be solid
- interest rates will need to rise further
- the Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the 2% inflation target
The USDCAD initially moved to the downside after the rate decision, but snapped back higher as focus returned to the US dollar. The better ISM data, and continued strength in the JOLTS job data, keeps the Fed in play for more tightening. Yields moved higher, the dollar moved higher, and stocks moved lower.
Looking at the hourly chart, the price of the USDCAD has been trading above and below its 200 day moving average 1.26597 over the last 3 trading days. The high price today - reached in the late Asian/early European session - saw the price move back above the moving average, but the high price could not extend toward the high price from yesterday, and the price move back below the level.
The rise off of the Bank of Canada low has reached up to 1.2652. The 200 day moving average is just above that level at 1.26597. It will take a move above the 200 day moving average to give buyers more confidence. More upside momentum would have traders looking toward the falling 100 hour moving average and 100 day moving average which are both converged near 1.2696. The 61.8% retracement of the move up from the April 21 low also is near that level, increasing the areas importance.
If there was a key barometer for buyers and sellers it is at 1.2696.
Until then, the focus will be on the 200 day moving average at 1.26597. That is a step 1 if the buyers are to take more control. Conversely, stay below the level, and traders will look back down to the low from yesterday near 1.2626 followed by the lower trend line on the hourly chart above).
Of note, Fed's Daly, Fed's Williams, and Fed's Bullard are all scheduled to speak later today. The market will be focused on their expectations for rates going forward.
