- The Bank of Canada maintained its key overnight interest rate at 5%.
- Canada’s GDP unexpectedly contracted by an annualized 0.2% during the second quarter.
- The BoC noted that inflation would temporarily rise before subsiding.
Today’s USD/CAD forecast is slightly bullish. On Wednesday, the Bank of Canada (BoC) maintained its key overnight interest rate at 5%. Moreover, the central bank acknowledged that the economy had entered a slower growth phase. Still, it indicated its readiness to increase borrowing costs if inflationary pressures continued.
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To combat persistently elevated inflation, the BoC had raised rates by a quarter point in June and July.
However, Canada’s gross domestic product unexpectedly contracted by an annualized 0.2% during the second quarter. This suggested the economy may already be in a recession. Nonetheless, inflation accelerated to 3.3% in July, with core measures remaining around 3.5%.
The Bank of Canada stated, “With recent evidence of reduced excess demand in the economy and considering the delayed impact of monetary policy, the Governing Council has opted to maintain the policy interest rate at 5%.”
The bank indicated its willingness to raise rates further if inflationary pressures persisted. However, analysts believe this hawkish stance will unlikely to lead to immediate rate hikes. Bank of Canada Governor Tiff Macklem will deliver a speech and hold a press conference to discuss this decision on Thursday.
Furthermore, the BoC noted that inflation would temporarily rise before subsiding due to recent increases in gasoline prices.
Conversely, spending is constrained, with interest rates at their highest level in 22 years. Moreover, the economy has entered a period of reduced growth necessary to alleviate inflationary pressures.
USD/CAD key events today
Investors will watch for the initial jobless claims and the crude oil inventories report that might cause volatility in the pair.
USD/CAD technical forecast: 1.3650 key level holds strong against bullish momentum.
On the charts, USD/CAD bulls are struggling to break free of the 1.3650 key level. Although bulls are in control, the price has paused at 1.3650 for some time. This has allowed the 30-SMA support to move closer to the price.
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The RSI trades in bullish territory, showing that bulls have solid momentum. Therefore, the price might soon detach from the 1.3650 key level and climb to the 1.3700 resistance level.
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