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Canadian dollar strengthens ahead of Bank of Canada interest rate decision

Canadian dollar strengthens ahead of Bank of Canada interest rate decision

The Canadian dollar is strengthening in forex, and the USD/CAD pair is declining ahead of the decision of the Bank of Canada on interest rates. The Central Bank of Canada, which was one of the first central banks to start raising interest rates last year, may also be one of the first to pause rate hikes.

The Bank of Canada is expected to raise interest rates by 25 basis points, slowing down from a 50 basis point hike in December and a 75 basis point hike in the middle of the month last year. The move comes as inflation slows from its post-pandemic peak of 8.1% to 6.3% now. Inflation is expected to fall within the bank’s target range of 1-3% by the end of the year.

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However, Bank of Canada Governor Tiff Macklem will have to tread carefully and will likely leave the central bank open to raising rates again if necessary, instead of declaring a victory over inflation.

What’s next for the USD/CAD pair?

USD/CAD trading range is capped ahead of the release, capped by the SMA-50 moving average at 1.35 and lowered at 1.3345, 2023 low.

The recent failure to break above the 50-day simple moving average may indicate that the recent downtrend has not subsided yet. This, combined with RSI below 50, gives sellers hope for further declines.

Source: Tradingview, Stone X

Sellers may look for a break below 1.3345 to expose the SMA-100 MA at 1.3250 and the November low. A break below this level could lead to a test of 1.32 (SMA-200), above which the price has been trading since the beginning of June.

On the other hand, a rise above the 50-day SMA at 1.35 could open the door to 1.3680, the 2023 high, and 1.37, the December 2022 high.

Fiona Chincotta, FOREX.com » Official site

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Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not warrant its accuracy or completeness and shall not be liable for any direct, indirect or consequential damages that may result from anyone relying on such information.

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