USD / CAD rate drops in June on pending BoC policy

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Canadian dollar talking points

USD / CAD extends decline from monthly high (1.3646) as Bank of Canada (BoC) maintains current policy in July, and exchange rate may continue to reduce lead from June trough (1.3315) as a central bank broadly endorses a wait-and-see approach to monetary policy.

USD / CAD rate drops in June on pending BoC policy

USD / CAD nears July low (1.3491) as BoC commits to “maintain the key rate at the effective lower limit“And it seems that the Governing Council is in no hurry to deploy more non-standardized tools as the central bank plans to do”large-scale asset purchases of at least $ 5 billion per week in Government of Canada bonds.«

Source: BoC

The BoC insists that “Bank ready to provide further monetary stimulus if necessaryBut the update to the Monetary Policy Report (RPM) suggests that the BoC will be sidelined for the rest of the year, as the central scenario shows that the Canadian economy is growing.5.1% in 2021 and 3.7% in 2022. «

In turn, the BoC can tame speculation for additional monetary supportThe combination of the very low key rate and asset purchases considerably stimulates the monetary situation“, But the central bank seems reluctant to abandon the Governor Tiff Macklem warns that ” the exceptionally strong short-term growth of the reopening phase should give way to a slower and more bumpy recovery phase.«

That said, the USD / CAD could continue to consolidateit breaks the formation of ascending channels of the previous month, while the progression of the beginning of this month takes place before the June high (1.3801).

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Daily USD / CAD rate chart

Image of the daily USD / CAD rate chart

Source: Negotiation view

  • Keep in mind that the USD / CAD correction of the 2020 high (1.4667) managed to close the price gap from March, the exchange rate decline pushing the relative strength index (RSI) in oversold territory for the first time since the beginning. of the year.
  • However, the RSI failed to maintain the downward trend from May, as the USD / CAD was reversed from the March low (1,3315), the development highlighting a potential change in market behavior as the exchange rate continues to follow the June range.
  • In turn, the USD / CAD could continue to consolidatebecause it breaks the formation of ascending channels after the unsuccessful attempt to test the June high (1.3801), with a lack of momentum to break / close above 1.3610 (61.8% retracement) at 1.3660 (78.6% expansion) pushing the exchange rate towards the month of July weak (1.3491).
  • Need a fence under the Fibonacci overlap around 1.3510 (38.2% expansion) to 1.3540 (23.6% retracement) to bring the region from 1.3440 (23.6% expansion ) at 1.3460 (61.8% retracement) on the radar, with the next area of ​​interest coming around 1.3290 (61.8% expansion) at 1.3320 (78.6% retracement) ), which corresponds to the June low (1.3315).
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– Written by David Song, monetary strategist

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