Home USD/CAD Forecast: BoC Raises Rates, Hints for More Hikes

USD/CAD Forecast: BoC Raises Rates, Hints for More Hikes

  • The Bank of Canada raised its key overnight rate by 0.25% to a 22-year high of 5.0%.
  • Investors have placed a 30% probability of another BOC hike in September.
  • The dollar reached its lowest point in over a year after the US inflation report.

Today’s USD/CAD forecast is bearish. On Wednesday, the Bank of Canada lifted its key overnight rate by 0.25% to a 22-year high of 5.0%. Moreover, the bank stated that there is a risk of inflation surpassing its 2% target, which may further increase interest rates. 

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Analysts and markets had anticipated this move, as it is the second consecutive month of a 0.25% rate hike. Notably, after a pause of five months, the Bank of Canada raised the overnight rate in June, stating that the monetary policy was not adequately restrictive. 

However, the bank has omitted the line about rates not being restrictive enough in its latest statement. Nonetheless, it revised its growth forecast for this year, predicting higher growth. Additionally, it extended its timeline for achieving the inflation target to mid-2025, delaying it by six months.

Following the decision, Bank of Canada Governor Tiff Macklem informed reporters that they are prepared to increase the policy rate if new information suggests the need for further action. However, they aim to avoid unnecessary increases. The decision prompted Canadian money markets to increase their expectations for another rate hike. It is approximately 30% likely to happen at the next policy announcement in September. 

Meanwhile, the dollar experienced a significant decline, reaching its lowest point in over a year. This drop came as data revealed that the increase in US consumer prices had slowed down in June. 

USD/CAD key events today

Investors are expecting the initial jobless claims report and more inflation data from the US. The PPI is a leading indicator of consumer inflation.

USD/CAD technical forecast: Sellers aiming to pounce 1.3150.

USD/CAD technical forecast
USD/CAD 4-hour chart

The bearish bias for USD/CAD has strengthened in the 4-hour chart with a break below the 1.3201 support level. Moreover, the RSI has reached the oversold region, indicating extreme bearish momentum. Although this may lead to a pullback, the bearish bias will remain with the price below the 30-SMA.

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Currently, the price is approaching the 1.3150 support level, where it might pause or pull back before the downtrend continues.

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Saqib Iqbal

Saqib Iqbal

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.