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Fears of a deepening recession in Canada led BoC Governor Mark Carney to drop his reluctance to utilize tools beyond the interest rate to manage monetary policy, and as the central bank expects the economic downturn to intensify, deteriorating fundamentals are likely to weigh on the exchange rate as market participants anticipate borrowing costs to fall lower.
Fears of a deepening recession in Canada led BoC Governor Mark Carney to drop his reluctance to utilize tools beyond the interest rate to manage monetary policy, and as the central bank expects the economic downturn to intensify, deteriorating fundamentals are likely to weigh on the exchange rate as market participants anticipate borrowing costs to fall lower. After slipping to a low of 1.1463 in November, the USD/CAD surged to a high of 1.3065 in March, and the pair may continue to hold a broad range over the near-term as risk flows continue to dictate price action in the currency markets. Over the next few hours of trading, I expect the pair to push high to retrace the sell-off from yesterday, and we may see the pair attempt to break above the 120 SMA to make a run for 1.2720-30 (21.4%Fib) over the following week however, if the USD/CAD fails to break above the 21.4% Fib, I would expect the pair the fall back towards the lower-end of its range, and may test 1.2260-70 (50.0% Fib) for short-term support. Nevertheless, as the economic docket is expected to show a weakening outlook for the U.S. labor market, expectations for a rise in unemployment could stoke increased selling pressures on the pair as the outlook for growth and inflation falter. Be sure to check out other Technical Reports from DailyFX for additional information on the major currency pairs.
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