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The Bank of Canada did it again – the rates were raised by 0.25% to 0.75%. There was a consensus for this move. What wasn’t expected was a weaker forecast for the Canadian economy. So, the decision hurts the Canadian dollar.

USD/CAD now trades at 1.5560, about 40 pips higher than before the release. Will it convincingly break above the resistance line?

In the statement that accompanied the rate hike, Mark Carney and his team said:

The Bank expects the economic recovery in Canada to be more gradual than it had projected in its April MPR, with growth of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada. The Bank anticipates that business investment and net exports will make a relatively larger contribution to growth.

The initial rate hike, from 0.25% to 0.50% was also expected by economists and failed to boost the loonie. It then traded lower on worries about the future. When a big hint for the rate hike was released, the Canadian dollar jumped, but when it happened in reality, it wasn’t impressed. Also now, the rate hike was overshadowed by the lower forecast.

Earlier this week, USD/CAD was trading in a narrow range. After jumping on Friday above the resistance line of 1.04 and flirting with the 1.0550 resistance line, USD/CAD traded in a range between 1.0485 and 1.0550. In the hour before the release, trading became more choppy. USD/CAD reached 1.0585 before dropping to 1.0526 just before the release.

Significant support for the pair is found at 1.04, followed by the 2009 low of 1.02 and the ultimate line of support – parity. Above, 1.0680 recently served as a line of resistance, and it’s followed by a veteran line – 1.0750, that stopped the pair several times in recent months. The last significant line in sight is 1.0850.

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