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The Bank of Canada keeps the rate the same and shows concern about global trade wars

CAD - Canadian Dollar

The initial reaction of the Loonie was adverse after the BoC release; the USD/CAD pair moved to the upside (weaker Loonie), touching an intraday high of 1.3144. However, the USD/CAD pair has fallen 102 pips since then, and it is trading at 1.3053 at the time of this writing, mostly due to the weakness in the Greenback over the last 24 hours of trading.

The initial adverse reaction of the Loonie was likely due to a gloomy assessment of the economy’s near-term prospects. The BoC left the benchmark interest rate unchanged at 1.75 percent, as expected, but said recent economic strength is ambiguous and that it is payback for an awful winter that caused economic growth to nearly stall. Carolyn Wilkins, Senior Deputy Governor, said at the press conference in Ottawa, “While recent export data for Canada have been encouraging, the trade environment continues to be the biggest wild card in our outlook.” At the same time, the policymakers cut their forecast for economic growth in 2020 to 1.9 percent from 2.1 percent, which might not generate much inflation pressure.

Despite the negative drivers described above, the Canadian economic data has been surprisingly strong. Statistics Canada reported that Canadian merchandise exports surged 4.6 percent in May and the BoC dropped housing from its shortlist of significant threats to the outlook.

Technically speaking, the USD/CAD pair is trading at a strong support at the moment, 1.3050, and if that support is broken, it might test 1.3029. To the upside, it might run until 1.3094 in intraday trading. However, it might test 1.3137 if the Greenback erases some losses experienced within the last few last hours.

Key Movers

In the U.S., according to the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in June on a seasonally adjusted basis (MoM), the same increase as in May. Over the last 12 months, the All Items Index increased 1.6 percent before seasonal adjustment. The CPI ex Food and Energy (YoY) came in at 2.1 percent in June versus the 2 percent expected, which was higher than in May.

A factor which might be helping the Loonie as well is the price of crude oil hitting a six-week high, close to USD 61 a barrel in the spot market as oil rigs in the Gulf of Mexico were evacuated ahead of a storm, and an incident with a British tanker in the Middle East heightened tensions in the region.

Expected Ranges

USD/CAD: 1.3050 - 1.3138 ▼

EUR/CAD: 1.4701- 1.4772 ▼

GBP/CAD: 1.6353 - 1.6437 ▲

AUD/CAD: 0.9103 - 0.9145 ▲

NZD/CAD: 0.8703 - 0.8741 ▲