The Bank of Canada Decision on Interest Rate
Published on: 07/13/18 8:27 AM
The interest rate decision of the Bank of Canada (BoC) is likely to sap the current recovery of the USD/CAD exchange rates. Bank of Canada is expected to offer an increment rate of 25bp. The bank will continue to control the financial plan for the remaining part of 2018. Activities in the first half were stronger than it was projected in the previous meetings. Governor Stephen Poloz and Co. will continue to prepare businesses and households for higher costs of borrowing. According to the Governing Council, the market will accept higher interest rates as a way of moving inflation towards the set target.
In turn, a hawkish policy statement and a 25bp increase of the benchmarked interest rate are likely to trigger a light reaction in the Canadian dollar. A dovish rate rise might fuel the current rebound in USD/CAD since participants are scaling back the bets for a hostile hiking-cycle.
Effects of Bank of Canada Rate Decision on USD/CAD
The Bank of Canada endorsed an outlook for a fiscal plan after holding the benchmarked interest rate in May. Inflation in Canada is close to the target and tends to go even higher in the coming months. It is clear from the recent comments that Bank of Canada will continue to normalize the 2018 monetary policy. The Governing Council at Bank of Canada believes that higher interest rates will be issued to move inflation near the target. Hawkish rhetoric led to the Canadian dollar leading and USD/CAD slipping below the 1.29000 handle to complete the transaction success at 1.2873.
USD/CAD DAILY CHART
The USD/CAD outlook remains constructive since the exchange rates seem to respond proportionally to the trend line support. The Relative Strength Index (RSI) points out different elements, and the oscillator flops to keep bullish details from the recent months. On the same note, failure to check the 1.2980 retracements to 1.3030 expansions instills a constructive attitude for USD/CAD. The productive outlook will be successfully installed if the pair snaps the lower highs & lows series from data obtained from the past week.
The market should have a closing rate above the1.3130 retracement hurdle to favor a significant recovery. Bank of Canada hopes that the next interest rate will be around 1.3290 expansions to a 1.3310 retracement. Fibonacci overlap will be following with retracement of 1.3420 to a retracement of 1.3460.