The Bank of Canada raised the interest rate for a third time in a row to 1%. This partial surprise sends USD/CAD down to another attempt on the support line.
USD/CAD fell from 1.0470 to 1.0415 at the time of writing. The Canadian dollar is now approaching a significant line:
Update 14:00 GMT: Canada’s important indicator, Ivey PMI was stellar – 65.9 points, 10 points more than expected. USD/CAD broke below 1.04 and now trades at 1.0370.
The veteran 1.04 line is very close now. A break under this line will send USD/CAD down towards 1.0280, although a similar break yesterday ended only at 1.0340. Below 1.0280, the next lines are 1.02 and 1.01. A rebound will send the pair towards 1.05, and later 1.0680.
There was no clear cut consensus about this particular rate decision. The majority of economists surveyed before the event opted for a rate hike, but this wan’t 100% certain. On the previous rate decision, the BOC expressed concerns about the economy, given the global worries.
The recent monthly GDP release showed that the Canadian economy slowed down in the second quarter of 2010, similar to the slowdown in the US economy. Also the recent employment figures were somewhat disappointing, leading some economists to think that a pause would be seen now.
But on the other hand, consumers are still buying, and the overall situation of the Canadian economy is good. In the accompanying statement, Mark Carney’s BOC hinted that they will pause with rate hikes for now.
It’s important to remember that previous rate hikes were accompanied with worried statements. These statements helped USD/CAD remain above parity. A weaker Canadian dollar is good for the Canadian economy.
Earlier today, Canadian building permits surprised with a drop of 3.5%, better than a drop of 4.2% that was expected.
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