Title: USD/CAD Edges Higher Following Bank of Canada Rate Cut: Key Technical Levels and Market Implications
Author Credit: Based on an article by Greg Michalowski, originally published on ForexLive via TradingView
The USD/CAD currency pair saw modest upward movement in the aftermath of the Bank of Canada’s (BoC) decision to cut interest rates, marking a pivotal shift in monetary policy. The rate cut, which was anticipated by markets, positions the BoC as the first major central bank among the G7 nations to initiate an easing cycle in 2024.
While the move had been largely priced in by traders, the subsequent reactions in both the Canadian dollar and USD/CAD pair provide a valuable lens through which market sentiment and future price action can be evaluated. This article analyzes the technical outlook of the USD/CAD, explores implications of the rate cut, and examines potential drivers going forward, including relative monetary policy paths and economic data releases.
Bank of Canada’s Rate Cut: Overview
On June 5, 2024, the Bank of Canada lowered its overnight interest rate by 25 basis points, taking it from 5.00% to 4.75%. This decision aligns with growing expectations that peak interest rates have already been reached and mirrors improved inflation metrics and a cooling labor market in Canada.
Key points from the BoC announcement:
– The BoC cited consistent progress on inflation, which has eased closer to the target 2% level.
– Policymakers acknowledged slack in the economy, including moderating wage growth and declining consumer spending.
– The rate cut is being treated as a cautious first step, with the BoC stating that future moves will be data-dependent.
– Inflation expectations have moderated, adding confidence for the central bank to begin monetary easing.
Market Reactions:
– The Canadian dollar weakened modestly following the announcement, reflecting the interest rate differential now slightly favoring the US dollar.
– USD/CAD rose modestly from around 1.3660 to a high of 1.3707 post-release, before pulling back and exhibiting two-way price action.
– Broader market dynamics, such as oil prices and US dollar strength, also played a role in restraining a sharper move higher in the USD/CAD.
Why This Matters: Relative policy divergence may emerge as a key macro driver. If the Federal Reserve remains on hold or delays its own easing, while the BoC continues to cut, we could see a further widening of interest rate differentials, supporting USD/CAD upside.
USD/CAD Technical Overview Following the BoC Cut
Despite bullish momentum following the BoC decision, USD/CAD buyers failed to maintain control beyond immediate resistance, suggesting a continued tug-of-war between bulls and bears. From a technical standpoint, the situation warrants careful monitoring of critical price levels.
Daily Chart View:
– The pair bounced modestly into the 1.3707 level, but failed to sustain daily closes above this zone.
– On the daily timeframe, price remains above the 100-day moving average (approx. 1.3600), signaling that medium-term momentum still slightly favors the upside.
– RSI (Relative Strength Index) is neutral near 50, suggesting the pair is not overbought or oversold.
– A successful daily close above the 1.3700-1.3710 range is needed to attract buyers toward the next upside resistance.
Key technical levels to monitor:
Support:
– 1.3660 – Minor intraday support and pre-rate decision price.
– 1.3620 – Support from the 100-day moving average.
– 1.3570 – Support from May consolidation zone.
– 1.3520 – Next swing low and 200-day moving average area.
Resistance:
– 1.3707 – Immediate post-rate hike high.
– 1.3740 – March swing high (2024 resistance zone).
– 1.3800 – Psychological barrier and multi-month horizontal
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