**USD/CAD Breakout Strengthens Amid Bank of Canada Rate Pause and Global Macro Shifts**
*Adapted and expanded from original article by Rich Dvorak, published on Seeking Alpha*
The USD/CAD currency pair has seen a significant breakout recently, fueled by a combination of Bank of Canada (BoC) policy positioning, U.S. economic resilience, higher U.S. Treasury yields, and global risk sentiment. The cross has advanced strongly above key technical levels, signaling potential for further upside in the short to medium term. This article provides an expanded analysis of the USD/CAD breakout, the macroeconomic drivers behind it, and the technical levels to watch.
## Bank of Canada Stands Pat on Rates While Global Yields Rise
At its September policy meeting, the Bank of Canada chose to hold its benchmark interest rate at 5.00 percent. This decision was largely in line with market expectations and came after ten rate hikes since March 2022, aimed at reining in inflation. Although inflation remains elevated, BOC policymakers have pointed to signs of growth slowing and consumer spending cooling as reasons for the pause.
**Key takeaways from the Bank of Canada decision:**
– Interest rate held steady at 5.00 percent in September
– Central bank noted signs of a slowing economy, including:
– Reduced consumer spending
– Declining housing activity
– Weakening job gains
– BoC maintained a hawkish bias, stating it was prepared to raise rates further if inflationary pressures persist
Despite maintaining a tightening bias, the tone of the BoC’s statement was interpreted as cautiously dovish by investors. The BoC expressed concerns about weaker demand and potential downside risks to the economy, even as it acknowledged that core inflation remained sticky.
## U.S. Dollar Strength from Economic Divergence
In contrast to the BoC’s pause, the U.S. Federal Reserve has maintained a more aggressive stance. With the American economy showing persistent strength compared to its Canadian counterpart, the spread between Canadian and U.S. yields widened further, boosting the U.S. dollar.
**Factors contributing to U.S. dollar (USD) strength:**
– U.S. job market remains robust
– Inflationary readings have stayed above the Fed’s target
– Fed Chair Jerome Powell has reiterated commitment to bring inflation to 2 percent target
– U.S. Treasury yields, especially the 10-year, climbed to 15-year highs, attracting foreign capital
The divergence between U.S. and Canadian monetary policy has thus reinforced upward pressure on USD/CAD, supporting further gains.
Additionally, the U.S. has benefitted from:
– Stronger-than-expected GDP growth in Q2 and early Q3 forecasts pointing to over 2 percent expansion
– Consumer spending holding up even in the face of tighter monetary conditions
– A resilient labor market with low unemployment near 3.8 percent
## Technical Analysis: USD/CAD Breakout Confirmed
From a technical perspective, USD/CAD has broken out of a multi-week consolidation pattern, confirming a bullish continuation. After trading within a narrow consolidation range over the summer months, the breakout occurred when prices moved above the 1.3650 resistance zone and continued higher above 1.3700.
**Key technical highlights:**
– Break above 1.3700 marks a bullish breakout from consolidation
– Price action clear of key resistance opens path toward 2023 highs near 1.3860
– Rising trendline support from July lows remains intact
– 50-day and 200-day moving averages are sloping upward, affirming the bullish trend
– Next resistance levels to monitor:
– 1.3745: Minor resistance from intermediate swings
– 1.3860–1.3900: 2023 high and major resistance zone
– 1.3977: October 2022 swing high, longer-term target if momentum continues
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