The USDCAD moved lower after the Bank of Canada rate decision as the reaction was it was more of a hawkish cut.
BOCs Macklem during his press conference said that they discussed both 25 and 50 basis point rate cuts before ultimately deciding on a 50 bps reduction. That the decision was driven by two key factors:
- the need to exit restrictive policy territory and
- economic data signaling a softer GDP growth outlook compared to October estimates.
Lower immigration targets were cited as a factor behind anticipated slower growth, while the potential for tariffs on Canadian exports adds significant uncertainty, though the bank emphasized it cannot base policy on speculative risks.
He acknowledged that the economy remains in excess supply with signs of softness, but widespread job losses typical of recessions have not materialized. The Canadian dollar’s weakness has largely stemmed from U.S. dollar strength and will need to be factored into future forecasts.Housing market dynamics, influenced by immigration and rate cuts, are being closely monitored.
While further rate cuts are possible, the pace will likely be more gradual compared to the recent 50 bps reductions, with decisions made on a meeting-by-meeting basis. Although there is slack in the labor market, consumer spending has been stronger than expected, and a spring housing market downturn remains a key risk.
Markets currently anticipate a moderate path for further cuts, with end-of-2025 rates projected between 2.50% and 2.75%, though actual outcomes will depend on incoming data.
Technically, the run to the downside fell below two targets outlined before the decision
- The 1.4145 level which was a swing level going back to November 26, and
- The rising 100-hour MA (blue line on the chart below). That moving average is higher at 1.41328 currently.
However, the next key targets that needed to be broken to get serious about selling fell short between 1.40889 and 1.41045. THe low price reached 1.4119 before bouncing.
The bounce higher has now taken the price of the USDCAD back above the 100-hour MA and the 1.4145 swing level.
Buyers are back in control above those levels with traders focused on the 2024 high at 1.41774. Move above that level and the high ceiling from yesterday and today would be targeted at 1.4193.
This article was written by Greg Michalowski at www.forexlive.com.
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