BOC Statement Preview: USDCAD Ranges Ahead of Anticipated Rate Cut

Summary:
• USDCAD could see some volatility today when the BOC makes its rate decision. Will Canadian central bankers ease rates despite signs of growth?

Later today, the Bank of Canada (BOC) will announce its interest rate decision. Scheduled at 3:00 pm GMT, the central bank is anticipated to cut its official cash rate by 50 basis points to 1.25%. What does this mean for USDCAD?

The rate cut from the BOC began to be priced in after both the RBA and Federal Reserve cut their respective interest rates earlier this week. The move confirmed speculations that G7 countries are coordinating their actions in order to support global growth amid coronavirus concerns.

However, on the domestic front, recent data from Canada suggests that growth remains robust. Retail sales improved from -1.20% in January to 0.00% in February while the unemployment rate trickled 0.1% lower to 5.5%. CPI in Canada also ticked higher to 0.30% in February from -0.10%. Lastly, the country’s latest monthly GDP erased the 0.1% contraction in December when it printed at 0.3% in January.

There are speculations that given these positive figures, the BOC may not exactly follow the Fed’s suit. Instead of a 0.50% cut, we could hear a 0.25% reduction. Some also say that there’s a chance that the BOC would stand pat. This is based on BOC Governor Stephen Poloz’ strong adherence to economic data.

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USDCAD Outlook

On the daily time frame, we can see that USDCAD is trading just above its previous highs at 1.3350. The Fibonacci retracement tool suggests that the currency pair could be finding support at the previous resistance around 1.3340. By connecting the lows of February 21 to the high of February 28, we can see that the 50% Fib level coincides with this price too. A rate cut from the BOC could trigger weakness on the Canadian dollar and push the currency pair to its February 28 high at 1.3463.

On the other hand, the 1-hour time frame suggests a more neutral stance on USDCAD. For the past two trading days, the currency pair has been trading sideways. This range suggests that buyers and sellers are neck-and-neck with each other. A close below yesterday’s low at 1.3317 could mean that sellers are more dominant. This can be triggered by a surprise hold from the BOC, a lower rate cut, or remarks highlighting the strength of the Canadian economy.