Market News & Analysis


Top Story

Bank of Canada Delivers

Yesterday in our BOC preview, we noted that if the Bank of Canada were to cut rates today it would most likely be on the back of global stimulus due to the coronavirus, and less about the Canadian  economy itself.  Indeed, the Bank of Canada did cut rates today by 50bps from 1.75% to 1.25% (the lowest level since mid-2018) and noted that it was primarily because the coronavirus would be a negative shock to the economy.  The Committee would continue to monitor developments and adjust monetary policy further if necessary. 

USD/CAD went bid after the announcement, even though price had been moving higher since yesterday in anticipation of a possible rate cut.  The headline expectation was for unchanged at 1.75%, however after the US Federal Reserve surprisingly cut rates by 50bps, fx markets began pricing in a BOC cut as well.  50bps was more than markets hoped for and this sent USD/CAD to resistance at the 127.2% Fibonacci extension from the highs from November 20th, 2019 to the lows on December 31st, near 1.3430.  Above there, is resistance at Friday’s highs near 1.3465.  Horizonal support comes across at 1.3330, and dips to 1.3250 are likely to be bought, as trendline support and horizontal support meet near that level.

Source: Tradingview, City Index

As Canadian rates sit at 1.25%, higher than most of G7 countries (technically, US targets between 1.00%-1.25%), markets may begin to price in another rate cut by the BOC.  If such a scenario were to occur, USD/CAD could continue moving higher. On a daily timeframe, it’s easy to see how price has been moving higher off the December 31st lows and pulled back at resistance near 1.3330 to the 200 Day Moving Average as the RSI became overbought, forming a flag formation.  On February 21st, price broke out of the flag.  The target for a flag the length of the flagpole added to the breakout point of the flag.  In this case the target is near 1.3590, just above the horizontal resistance from May 31st, 2019.  Of course, nothing moves in a straight line, and a pullback would give the RSI room to unwind as buyers may look to step in and buy the dip.

Source: Tradingview, City Index

Traders now will be waiting and watching as the coronavirus continues to spread across the globe. With rates at 1.25%, Canada still has room to cut.   If the virus continues to plague global growth, including Canada, there may be more ahead from the Bank of Canada.


From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.