Canadian Dollar Jumps – Road to Rate Hike Open

The Bank of Canada didn’t move the rates, but removed the comment regarding no rate hike till the end of Q2. A rate hike in the next meeting looks very probable. USD/CAD is below parity once again. Update on this strong currency.

While Mark Carney’s BOC left the main interest rate, the Overnight Rate, unchanged, it removed its own strains regarding a move on the rates. Here’s a quote from the statement, emphasis mine:

…the Bank also provided exceptional guidance on the likely path of its target rate. This unconventional policy provided considerable additional stimulus during a period of very weak economic conditions and major downside risks to the global and Canadian economies. With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus.

I read this statement and see a rate hike at the next meeting. The statement explains that the conditions have improved, expressing optimism. In the past, leaving the commitment to keep rates low hurt the loonie. Now the opposite happens.

Later this week, the BOC will publish a more thorough report, BOC Monetary Policy Report, which will detail more about the economy. This publication is followed with a press conference with Mark Carney, the bank’s governor.

In this press conference, he’ll definitely be asked about the interest rate. Although he might give a detailed answer describing the pros and cons, his words will probably supply the necessary confirmation of a rate hike on June 1st, the next rate meeting that the bank holds.

Also this week, on Friday, two more Canadian figures will be published: consumer price index and retail sales. The first indicator, which is directly related to the interest rate, could also set the tone for the next decision. Both figures will rock the loonie towards the end of the week. A close under 1 is essential for further drops in USD/CAD.

USD/CAD back to parity

USD/CAD reacted quickly with a drop from 1.01 to parity, and continues south. USD/CAD parity was already reached recently, but the pair went back up on the greenback’s strength.

Below parity, the next line of support is 0.98, a support line during 2008. The next line is even stronger, 0.97. Reaching this line will also depend on another surge in oil prices.

Above, if the pair relaxes, the initial resistance line is 1.01, followed by the mighty resistance area of 1.02, the 2009 low and a significant line at all times, also this week.

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