BOC Bounce May Have Been A Bit Too Much For USD/CAD

The BOC left the interest rate unchanged at 1.25% as most economists had expected. Markets priced in a 20% chance of a hike.

The USD/CAD jumped to a high of 1.2635 as the statement pledged caution regarding raising the interest rates. This was not new but perhaps some had expected a more hawkish tone. In addition, the Canadian Dollar advanced nicely in recent weeks thanks to NAFTA progress and 3-year highs for oil. Perhaps this was an opportunity to take profits.

Otherwise, the statement was quite optimistic. They acknowledged progress on wages and inflation. A dissipation of some temporary factors may push inflation even higher. Wages have come up as expected.

On housing, the see some of the weakness unwinding later this year. In addition, the did mention trade fears, but as a risk in the context of upbeat global growth. This is not the worried tone of the previous statements when uncertainty about the North American Free Trade Agreement (NAFTA) was the principal theme and a source of great concern. Things have indeed improved since then.

Poloz and co. see weak Q1 growth at 1.3% annualized but seem certain of a rebound in Q2, worth 2.5%.

All in all, this is an upbeat statement and as time passed by, the loonie is recovering and dipped below 1.26.

On the way up, the pair flirted with the 200-day Simple Moving Average but backed down. 1.2550, 1.2450, and 1.2250 are support lines while resistance awaits at 1.2630, 1.2680, and 1.2760.