Technical Bias: Slightly Bearish
- USDCAD has plunged around 400 pips this week, reaching 1.2211 on Thursday.
- Bank of Canada expects impact of oil price collapse to be transitory; expects the economy to rebound in Q2.
- Bank of Canada seen as less likely to cut interest rates again in the short-term.
The USDCAD has declined around 400 pips since Monday, as tepid US data and a neutral Bank of Canada supported one of the biggest reversals in recent memory.
The USDCAD plunged nearly 100 pips on Thursday, finding a bottom at 1.2201. The USDCAD would subsequently consolidate at 1.2212, declining 87 pips. The pair’s free fall has made the trend indicators obsolete, as investors continue to search for a bottom. The next support level is likely found at 1.2191. Initial resistance is likely found at 1.2482.
On Wednesday the Bank of Canada released its April rate statement and issued its quarterly Monetary Policy Report. The Bank left its benchmark interest rate unchanged at 0.75 percent, as Governor Stephen Poloz reiterated that the impact of weak oil prices on the economy is transitory. The BOC Governor said he expects the recovery to strengthen at the end of the year, as a weak loonie provides the necessary catalyst for exports.
The BOC also lowered its outlook on economic growth, as the impact of the oil price shock continues to be “front-loaded.”
“The Canadian economy is estimated to have stalled in the first quarter of 2015,” read the BOC’s official rate statement on Wednesday. The Bank added that it expects real GDP growth to rebound in the second quarter and “subsequently strengthen to average about 2 1/2 percent on a quarterly basis until the middle of 2016.”
Real GDP growth will average 1.9 percent in 2015, 2.5 percent in 2016 and 2 percent in 2017. The BOC expects stronger non-energy exports, increasing investments and stronger demand in the United States will be the main catalysts behind the recovery.
The Bank’s outlook suggests policymakers will hold off on cutting interest rates again in the short-term. The BOC shocked investors in January after it adjusted monetary policy for the first time since 2010 by cutting interest rates to 0.75 percent from 1 percent.