Bank of Canada Holds Rates Steady & Sticks to Data Dependency, USD/CAD Slides

BANK OF CANADA DECISION KEY POINTS:

• Bank of Canada holds interest rates unchanged at 4.5%, in line with expectations
• Policy statement reiterates that the central bank is prepared to hike rates again if needed
• USD/CAD whiplashes, but heads slightly lower after the announcement crosses the wire

Most Read: USD Breaking News – US Dollar on Offer After Mixed CPI Report

The Bank of Canada concluded its April monetary policy meeting this morning, voting to leave its overnight interest rate unchanged at 4.50% for the second consecutive reunion – a decision that was broadly in line with expectations. USD/CAD whiplashed, but headed slightly lower after the announcement, falling about 0.08% on the session.

The statement maintained similar guidance to last month, noting that the bank is prepared to raise borrowing costs again if needed to restore price stability, a sign that the tightening cycle is not necessarily over despite this hold.

On the economy, policymakers acknowledged that the labor market remains tight, that growth is holding up better than anticipated and that inflationary pressures continue to ease, although they also admitted that returning inflation to the 2.0% target could prove more difficult given underlying price dynamics.

In terms of macroeconomic forecasts, the central bank upgraded its 2023 GDP estimate, lifting it to 1.4% from 1.0% previously. Meanwhile, the inflation outlook was little changed, indicating that consumer prices are evolving broadly in line with recent assumptions. The table below summarizes the updated projections.

Source: Bank of Canada

The overall tone suggests that BoC will adopt a wait-and-see approach to err on the side of caution, but could resume its tightening campaign in the future without hesitation if the inflationary backdrop worsens or incoming data warrants it. This bias should support the Canadian dollar in the near term.

USD/CAD 5-MINUTE CHART

Source: TradingView

Updated at 11:25 am ET

USD/CAD TECHNICAL ANALYSIS

USD/CAD has pulled back significantly from last month’s high, but has been unable to break below a key ascending trendline in play for nearly a year now. In fact, the pair is sitting slightly above this dynamic support at the time of writing, with the bears and bulls still battling fiercely for control.

Traders should watch how prices react around current levels closely to better anticipate the next directional move. That said, there are two possible scenarios to consider: a breakdown or a rejection higher.

A breach of the 1.3450 technical support would reinforce the bearish pressure and pave the way for a drop toward 1.3330. On the other hand, if the bulls manage to defend the 1.3450 floor and trigger a bullish reversal, initial resistance appears at 1.3510, followed by 1.3700.

USD/CAD TECHNICAL CHART

Source: TradingView