OUTLOOK FOR THE CANADIAN DOLLAR: USD/CAD RATE DECISION BY THE BANK OF CANADA WHIPSAWS Following the latest Bank of Canada rate announcement, the Canadian dollar is trading lower. The Bank of Canada maintains its interest rates and decreases its weekly quantitative easing to C$2-billion. With the help of a weaker Canadian Dollar, the USD/CAD price action retreated higher from crucial support. This morning, Canadian Dollar bears are exercising their muscles and attempting to move the USD/CAD market action upward. Despite the Bank of Canada’s latest monetary policy update, which revealed a significant drop in the central bank’s quantitative easing program, the loonie is weakening. The Bank of Canada chose to cut weekly asset purchases by a third to C$2-billion, which was in line with expectations. Officials at the Bank of Canada kept rates constant and reiterated their forecasts for economic slack to be absorbed in the second half of next year, with minor revisions to GDP and inflation forecasts for 2022. However, the Bank of Canada’s monetary policy report also revealed a modest downward revision to its GDP prediction for 2021. PRICE CHART FOR THE USD/CAD IN A 4-HOUR TIME FRAME (28 JUNE TO 14 JULY 2021) The price of the US dollar against the Canadian dollar swung back and forth in response to these reports, as initial Canadian Dollar strength was swiftly unwound. This appeared to be a knee-jerk reaction to critical technical support in the price range of 1.2425-1.2450. Canadian government bond yields have also been under pressure, which is likely contributing to a weaker Loonie. That could be related to the drop in BoC rate hike odds by year’s end, from 39 percent pre-BoC to 32 percent by year’s end. — Rich Dvorak, a DailyFX.com analyst, wrote this article. For real-time market updates, follow @RichDvorakFX on Twitter.
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