Canadian dollar rises on sharp US numbers

Market Pulse · 27 Jan 10.7K Views

The Canadian dollar is in positive territory on Thursday. In the North American session, USD/CAD is trading at 1.3363, down 0.16%. Earlier, USD/CAD fell as low as 1.3303, its lowest level in two months.

BoC delivers dovish hike

The Bank of Canada raised rates on Wednesday for the eighth time since March 2022, continuing its aggressive rate-tightening cycle. However, the rate hike of 25 basis points was the smallest since March and brought the cash rate to 4.50%. The move was widely expected, but the Canadian dollar has posted gains.

BoC Governor Macklem was crystal clear about his plans, saying after the meeting that the Bank is likely to pause rate hikes, although he cautioned that this would be a “conditional pause”, dependent on data conforming with the central bank’s outlook.

The BoC has now tightened by some 400 basis points since March, but inflation has fallen modestly, from a high of 8.1% in June to 6.3% in December. This is much higher than the Bank’s inflation target of 2%, but the BoC is expecting a more rapid downtrend. The Bank’s Monetary Policy report, released at yesterday’s meeting, projected that inflation will fall as low as 3% by the end of 2o23 and drop to 2% in 2024.

The US released strong numbers today, highlighted by GDP for Q4, which was better than expected. GDP expanded by 2.9%, beating the forecast of 2.6% and following a 3.2% gain in Q3. Unemployment claims fell to 186,000, down from 192,000 and below the consensus of 205,000. As well, Durable Goods Orders shot up 5.6% in December, rebounding from -2.1% in November and ahead of the 2.5% forecast. The solid data will boost expectations that the Fed could still pull off a soft landing, but consumer spending will have to rebound for that to happen. In December, retail sales came in at -1.1% and that will have to improve if the US economy is to avoid a recession.


USD/CAD Technical

  • USD/CAD tested support 1.3314 earlier today. 1.3248 is the next support line
  • 1.3418 and 1.3484 are the next resistance lines

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