USD/CAD surges to 1.32, so much for a BoC rate hike…

• BoC raises policy rate by 25 bps as widely expected.
• WTI plummets below $71, down more than $3 on the day.
• US Dollar Index advances to 94.50 on hopes of strong inflation data.

After dropping down to 1.3060 with the initial reaction to the BoC’s rate hike decision and its relatively hawkish tone in the policy statement, the USD/CAD reversed its course and gained more than 100 pips to reach fresh weekly high at 1.3202. As of writing, the pair was trading at 1.3198, up 0.65% on the day.

Earlier today, the Bank of Canada hiked its policy rate to 1.5% and reiterated that higher interest rates would be warranted to keep inflation near the target and would continue to take a gradual approach with regards to further rate hikes. During the press conference following the announcement, Governor Stephen Poloz warned that in case of further trade tariffs, the economy would slow down and the inflation would rise.

Regardless of the BoC’s decision, the bearish pressure quickly faded away as the commodity-sensitive loonie struggled to find demand amid a sharp fall in crude oil prices. The barrel of West Texas Intermediate was last seen trading at $70.45, losing nearly 5% on the day.  

On the other hand, on the back of the upbeat PPI data, the US Dollar Index gathered momentum as investors started pricing a similar higher-than-expected reading tomorrow. The annual PPI in June rose to its highest level since November 2011 at 3.4% while the core version advanced to 2.8% to surpass the experts’ estimate of 2.6%.

Technical outlook

With this recent rally, the RSI indicator on the daily chart turned north above the 50 mark, suggesting that buyers are dominating the price action. The immediate resistance aligns at 1.3210 (20-DMA) ahead of 1.3265 (Jun. 29 high) and 1.3350 (Jun. 28 high). On the downside, supports could be seen at 1.3060 (daily low/50-DMA), 1.3000 (psychological level) and 1.2930 (100-DMA).