Yesterday, the Central Bank of Canada took an expected decision, raising the interest rate by 25 basis points. Although traders did not have 100 percent confidence, this had little effect on the dynamics of the pair. In part, the fact that the rate hike was taken into account in the prices but this is because most are accompanied rhetoric of the representatives of the Canadian regulator.
The fact that the rate hike is already a fundamental factor, especially if it was predictable and further behavior of the price depends on the subsequent actions of the regulator. It so happened that the market lives by these expectations. Recalling a lot of eloquent examples such as when the euro rose throughout the market after the decision of the ECB to reduce the rate. as the regulator promised to "freeze" the current parameters of monetary policy for a long time. Similarly, the dollar was dropped because of the fact of a rate hike, as the Fed took a too cautious stance about its future actions.
From the same series, traders reaction of the Canadian dollar yesterday did not like the "soft" tone of the regulator, despite the growth of key macroeconomic indicators and a significant rise in the price of oil. In general, the Bank of Canada took a rather ambiguous position. On the one hand, he raised the forecast for GDP growth and inflation indicators and noted a significant improvement in the labor market. On the other hand, the Central Bank hinted at preserving accommodating policies to test the "sensitivity" of the country's economy to new conditions. Also, the regulator said that it is necessary to monitor inflation processes and the dynamics of wage growth.
In general, there is nothing surprising that the Central Bank took a wait-and-see position after the third rate hike in the last seven months. Nevertheless, the USD/CAD pair grew right after the announcement of the decision, as soon as the market saw the text of the accompanying statement. Part of it, the regulator raised concerns about the North American Free Trade Area.
Let me remind you that this agreement is now under revision, and, apparently, the negotiation process between the US, Mexico, and Canada will end in vain. Last week, information appeared on the market that Trump would announce an early exit from the deal, but these rumors have not yet been confirmed. Yesterday, Donald Trump said during an interview with Reuters that the negotiation process is still ongoing.
"Let's see what will happen next." I can withdraw from the agreement, although many people will be dissatisfied with this decision, "said by the US president. but he himself does not believe in the effectiveness of the negotiations.
In turn, Prime Minister of Canada Justin Trudeau is more optimistic. According to him, there are "good chances" for the transaction to be renewed at the moment. He did not go into details, but noted that the next round of negotiations (which will begin next week in Montreal) will be "more productive than everyone else." In other words, now the disposition is as follows: Trump is in no hurry to break the agreement, while Canadians prepared a new version of the compromise solution.
The reopening of the deal on the free trade zone, which is virtually any format, will give a "green light" to further tightening of monetary policy. The management of the Bank of Canada. At the press conference, Stephen Poloz and Carolyn Wilkins, even stated that an unreasonable delay in raising prices, would have a negative impact on the country's economy. The most meaningful of their rhetoric is that "in time". The Canadian economy will require tightening of the parameters of the monetary policy, in spite of the fact of the continuation of the accommodative policy in the near future.
Frankly, the market did not know how to react to such contradictory results of the January meeting. This is evidenced by the ideal candle of Dodge, which was formed at the end of the trading day on the D1 timeframe. This indicates that the market is in limbo, waiting for an additional information reason.
Further growth in the oil market, which stalled around the 70th mark, could push the pair lower due to the weakening of the US currency. Negative comments by politicians on NAFTA or a slowdown in Canadian inflation (release next Friday) could provoke a northward pullback.
From the technical aspect, the priority remains for the southern movement. Doji candle speaks about the same probability of both growth and price reduction, but at the moment, the pair is between the middle and bottom lines of the Bollinger Bands indicator (on the daily chart) and under the Kumo cloud of the Ichimoku Kinko Hyo indicator. All of these speak in favor of price reduction with the first medium-term target of 1.2305 (the bottom line of the Bollinger Bands indicator). The resistance level is the price of 1.2535 (the middle line of the above indicator): overcoming this target will cancel the "bearish" scenario.
