The USD/CAD has soared 70 basis points on the back of a rather dovish bank of Canada statement. As unanimously expected, the Bank left interest rates unchanged but what caught traders by surprise was this statement: Core inflation has softened by more than the Bank had expected, with more muted price pressures across a wide range of goods and services, consistent with the unexpected increase in excess capacity. Total CPI inflation has also been lower than anticipated, reflecting developments in core inflation and weaker-than-projected gasoline prices. Total CPI inflation is expected to remain around 1 per cent in the near term before rising gradually, along with core inflation, to the 2 per cent target in the second half of 2014 as the economy returns to full capacity and inflation expectations remain well-anchored.
The US dollar smashed through resistance at 0.9950 and triggered stops above 0.9980.
Today’s move is likely a short term game-changer for USD/CAD traders. The move above 0.9980 confirmed earlier signals that the 6 month long USD/CAD downtrend had ended with the retracement from 0.9830 breaking the down trend line at 0.9920. Further confirmation occurred when the 200 day moving average at 0.9983 gave way. Retracements should be limited to 0.9950.
For now, USD support is at 0.9980 and 0.9950. Resistance is at 1.0010 and 1.0070
Vice President, FX Trading