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  • Canada’s interest rates are at their highest level in 14 years.
  • High interest rates will likely stifle growth in Canada.
  • BoC is ready to increase interest rates in the coming months.

Today’s USD/CAD forecast is bearish as the Canadian dollar strengthens after BoC’s rate hike. As anticipated, the Bank of Canada increased interest rates on Wednesday to their highest level in 14 years, indicating that its most aggressive tightening campaign in decades was far from over as it fights to control inflation.

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In a routine rate announcement, the central bank increased its policy rate from 2.50% to 3.25%, meeting expert expectations and reaching a level last seen in April 2008. Since rates have risen above the BoC’s neutral level, monetary policy is now likely to stifle growth for the first time in about 20 years.

“Given the inflation outlook, the Governing Council still judges the policy interest rate will need to rise further,” the central bank said after delivering its fourth consecutive outsized hike. “As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target.”

Regarding policy tightening, the Bank of Canada is ahead of its counterparts in advanced economies. Since March, it has increased its policy rate by 300 basis points from a record-low 0.25%, and it still doesn’t seem to be finished.

“It does feel as though the bank is preparing the market for the possibility that rates will need to keep moving higher for more than one or two more meetings,” said Andrew Kelvin, chief Canada strategist at TD Securities.

USD/CAD key events today

USD/CAD investors will pay attention to speeches from Fed chair Powell and BoC Senior Deputy Governor Rogers. These speeches from policymakers signal the future of monetary policy in Canada and the US.

USD/CAD technical forecast: Solid bearish momentum after the divergence

USD/CAD forecast

The 4-hour chart shows a double top. The price has failed to break above 1.31922 on two different occasions. At the same time, the RSI shows a bearish divergence, a sign that the bullish trend may have weakened.

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The price has broken below the 30-SMA, and RSI is below 50, increasing bearish momentum. The price might, however, be unable to break below 1.31004, a strong support level.

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