Big session for the CAD overnight, hitting weekly highs against the greenback after the Bank of Canada signaled a faster pace of monetary policy tightening. The BOC raised the cash rate by 25bp to 1.75% which was of no surprise to markets who had fully priced this in. The accompanying statement triggered the rally in the loonie, with the USD/CAD falling to 1.2969 (76.87 US Cents) representing its highest level since October 17. Greenback strength has clawed back some of the gains, with USD/CAD opening this morning at 1.3051.
The Bank of Canada hawkish undertone comes from the comment that even with its benchmark overnight rate at 1.75% interest rates remain “stimulative,” signaling to market participants more hikes to come. The Bank of Canada in their monitory policy report emphasized to participants that neutralized rates somewhere between 2.5% and 3.5%. The optimism comes from the recent renewed North American pact between the United States, Mexico, and Canada, citing “it will reduce an important source of uncertainty that has been holding back business investment.” Markets are currently pricing three further hikes for next year. Markets are presently pricing three further hikes for next year.
The Canadian economic calendar is light for the balance of the week. Therefore, the technical front for the USD/CAD sees resistance 1.3071 with any downside moves expected to meet first support approaching 1.3029 and second at 1.2987.