Canadian dollar traders are gearing up for a busy trading session ahead, as the Bank of Canada is set to release its latest rate decision and update the market on its current thinking. The USD/CAD has the potential for significant moves in the weeks ahead, given the differing paths of Canadian and U.S. interest rates.
Expectations are for the Bank of Canada to reduce rates by 50 basis points later today, as recent data suggests the need for more aggressive easing than we saw at their September meeting, when they cut by 25 basis points. Inflation is currently sitting at 1.6%, well below the 2% target, and overall employment data remains weak—despite a positive report last time—with the unemployment rate at 6.5%. Additionally, sentiment surveys have increased concern levels regarding the economy.
The USD/CAD is currently just below long-term resistance levels on the daily chart, having risen from under 1.3450 to 1.3850 in the past few weeks. This movement aligns with a stronger dollar across the board. Some traders now believe there is potential for more upward moves, especially if we see either a larger cut—unlikely, but suggested by some Canadian banks—or a more dovish stance from the Bank of Canada, which recent data could prompt. On top of this, the U.S. dollar will, as usual, significantly influence the next trend for the pair. Higher inflation in the U.S., which could be strongly affected by a Trump victory in the election—also negative for CAD from a tariff perspective—could lead to a longer-term upward trend. There is, of course, a similar argument for the contrary trade; however, many are still looking for the ‘trend to remain their friend’ and are preparing to trade breaks of those resistance levels. Whatever the outcome today, traders are bracing for more volatility over the coming days and weeks in the loonie.
Resistance 2: 1.3946 – 2024 High
Resistance 1: 1.3910 – Trendline Resistance
Support 1: 1.3623 – 220-Day Moving Average
Support 2: 1.3456 – Trendline Support
