USD/CAD Outlook: BOC Hikes Rates but Signals a Pause

• The BOC raised its benchmark interest rate on Wednesday to 4.5%.
• The BOC announced it would probably delay future hikes for the time being.
• Canada’s economy will stagnate and possibly enter a recession during the year’s first half.

Today’s USD/CAD outlook is slightly bullish. The Bank of Canada raised its benchmark interest rate on Wednesday to 4.5%, the highest level in 15 years. It made history by becoming the first significant central bank combating global inflation to announce it would probably delay future hikes for the time being.

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The 25-basis-point increase was in line with analysts’ predictions. To control inflation, which peaked at 8.1% and eased to 6.3% in December but is still more than three times the 2% target, the bank has raised rates at a record-breaking pace of 425 basis points in 10 months.

Tiff Macklem, BOC governor, told reporters that “inflation is turning the corner.” We are still far from our goal, but recent events have strengthened our belief that inflation is decreasing.

According to Macklem, the bank intended to take its time to assess if the quick increases had successfully tamed the excessive demand and hot labor markets that have fueled inflation.

In its quarterly Monetary Policy Report (MPR), the bank presented a picture of an economy that is going to stagnate and possibly enter a recession in the first half of 2023, pushing inflation down to approximately 3% at midyear and back to 2% in 2024

USD/CAD key events today

Numerous economic figures will be made public today in the US, including the GDP, core durable goods orders, initial unemployment claims, and new home sales data. These will indicate how the US economy is doing in the face of rising interest rates.

USD/CAD technical outlook: Bulls struggle for control at the 30-SMA

In the 4-hour chart, USD/CAD trades right below the 30-SMA while the RSI is near the 50-mark. The price is trading near a pivotal level after bulls took over at the 1.3351 support level. Bulls made a strong bullish candle that paused at the 1.3425 resistance and the 30-SMA. 

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The price is currently consolidating below the SMA as bulls struggle for control. A break above the SMA and resistance level would see the bulls take over with the next target at the 1.3500 resistance. The price will retest the 1.3351 support if the 30-SMA resistance holds strong.

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