USD/CAD firmly heads towards 1.2660s on BoC’s rate hike

The USD/CAD pair slides, on Wednesday, after the Bank of Canada hiked the interest rate by 50 bps, raising it to the 1.50% threshold. The pair has snapped five days of losses, amid negative market sentiment, at the same time, global equities fall lower.

The Bank of Canada lifted rates by 0.50%, on the background of hot global inflation, driven by higher energy prices, the repercussions of the war in Eastern Europe, China’s Covid-19 related lockdowns, and ongoing supply chain disruptions. The Canadian central bank emphasized that the war “increased the level of uncertainty and put additional upward pressure on energy and agricultural commodities prices.”

The BoC also mentioned that Canada’s CPI, hovering around 6.8% YoY in April, would prospectively head higher in the near term before showing signs of easing. The central bank has noted that inflation continues to broaden, so, inflation has nowhere to go but up.

The BoC Governing Council added that interest rates would need to rise further and that the central bank’s assessment would guide the hiking pace. The BoC said it is prepared “to act more forcefully if needed to meet its commitment to achieving the 2% inflation target.”

Technically; the USD/CAD 1-hour chart shows the pair seesawed in a 44 pip range, between 1.2600-44, being 1.2644, the 20-period simple moving average (SMA), where it found sellers that put a lid on the USD/CAD upward reaction. Worth noticing that on the downside, USD/CAD’s buying pressure lifted the pair around 1.2600, so that’s the major’s floor in the near term.

The USD/CAD remains downward pressured, but USD/CAD buyers are lifting the pair above the 200-day moving average (DMA), which lies at 1.2659. Nevertheless, it’s worth noting that although they lift the major upwards, aiming towards 1.2700, solid ceiling levels lie ahead around 1.2700.

If the scenario of the USD/CAD reaching 1.2700 is about to play out, the USD/CAD’s first resistance would be the 100-DMA at 1.2695. Break above would send the pair towards the 50-DMA at 1.2708, followed by the May 27 high at 1.2783. On the other hand, the USD/CAD first support would be the 200-DMA. A breach of the latter would expose the Bollinger bottom band at 1.2607.

As for the US docket, latest data revealed the ISM Manufacturing PMI for May, which surprisingly surged to 56.1 in May, from 55.4 in April and beating market forecasts of 54.5. New orders, production, and inventories witnessed jumps while price pressures eased for the second month, from 82.2 versus 84.6.