Canadian Dollar Post-BOC Rate Cut: USD/CAD Pushes Tepid Initial Breakout
Canadian Dollar, USD/CAD Talking Points:
- The Bank of Canada cut rates by 50 basis points at this morning’s meeting but given the reaction in USD/CAD that move was already priced-in ahead of time.
- Interestingly as the USD has rallied aggressively against most major currencies over the past few days, USD/CAD is holding the same resistance that was in-play on Monday, explored further below.
The global rate cut bonanza continued this morning with the Bank of Canada’s 50 bp move. This came with little surprise as the initial reaction in the major of USD/CAD was muted, with a grinding move around resistance of 1.3846. Perhaps more interesting is the deduction that USD/CAD had held around that resistance while USD has shown major breaks elsewhere, with EUR/USD and USD/JPY both putting in significant extension of trends in each respective pair.
In the early aftermath of the release, bulls are starting to show a greater push but the big question at this point is whether it’ll be enough to allow a significant breakout to the next resistance level up, around the 1.3900 handle.
USD/CAD Hourly Price Chart
USD/CAD The Next 150 Pips Above
Given the natural cross-border trade between the US and Canada, there are a number of shared relationships to consider. There’s of course those that are doing business in both the US and Canada, from which a bit of natural speculation occurs. When the CAD is seen as cheap and the USD expensive, this can impact behavior and the opposite can be true when CAD is perceived as expensive and the USD less so. This is one of the reasons that the pair has built into a range over the past nine years with prices largely holding between 1.2000 and 1.4000 with the notable exception of the pandemic backdrop when the pair spent a couple months above the 1.4000 handle.
USD/CAD Monthly Price Chart
But on a shorter-term basis it’s the 1.4000 level that’s seemed well-defended, with last year’s swing high showing six pipettes below the 1.3900 handle and the swing-high from the year before showing up just inside of 1.3950. This year, when panic was peaking in early-August and VIX spiked to it’s third highest level ever, price put in a temporary but brief break of 1.3900 to hold just below the 1.3950 level.
This isn’t to say that a 1.4000 break is impossible but given the backdrop its notable to consider that some large speculators and producers and businesses can look to take advantage of what’s perceived as a cheap Canadian Dollar should 1.3950 or 1.4000 come into play, and perhaps even to a lesser degree around the 1.3900 level.
This would also seem to solidify the rationale for why the move has stalled around the 1.3850 level that’s being tested right now, even as the USD has shown significant strength against most other major currencies in the past couple days.
USD/CAD Weekly Chart
USD Near-Term Strategy
Despite the resistance potential that sits overhead, price action is objectively bullish at this point given the continued higher-highs and higher-lows that have printed; so we can’t quite say that it’s bearish from that perspective at this point with a fresh two-month-high showing up this morning.
If we do see a reprieve in the USD, which remains overbought as of this writing, that can begin to change but before sellers look to push bearish trends, they would likely want to wait for a violation of support to substantiate that strategy. The price of 1.3815 seems notable in that regards, as this was the support taken from prior resistance that held the lows ahead of the rate decision. Below that, there are Fibonacci supports at 1.3788 and 1.3769, after which the 1.3748 level comes into the picture and that’s another prior action support that’s confluent with a psychological level (1.3750).
USD/CAD Four-Hour Price Chart
--- written by James Stanley, Senior Strategist
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.
ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.
City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.
The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.
The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.
The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
© City Index 2024