Market update: Canadian dollar outlook after BoC stands pat

The Canadian dollar is testing the lower end of the past one-year range against the US dollar after the Bank of Canada (BoC) governor last week indicated that interest rates may have peaked.

BoC Governor, Tiff Macklem indicated last week that the central bank may not need to raise rates further if inflation continues to moderate. However, the central bank governor added that the BoC would be looking for “clear evidence” that inflation is heading toward the 2% target before it would cut interest rates.

BoC kept benchmark rates at a 22-year high on Wednesday but left the door open for more hikes saying inflation could exceed its target for another two years. Markets are pricing in a very small chance of another rate hike at its next meeting in December.

USD/CAD weekly chart

USD/CAD: looming bullish break?

USD/CAD has been testing a major barrier on the upper edge of a sideways channel since late 2022 (that comes at about 1.3900-1.3975). This resistance is strong and may not be easily broken – at least in the first attempt. However, any break above could open the way toward the 2020 high of 1.4675. For the upward pressure to begin fading, USD/CAD would need to fall under the early October high of 1.3785.

But, the broader upward pressure is unlikely to ease while it holds above the September low of 1.3375. USD/CAD has maintained a steady uptrend since mid-2023, rebounding from a crucial cushion on the 200-week moving average, coinciding with an uptrend line from 2021.

AUD/CAD daily chart

AUD/CAD: holding support for now

AUD/CAD is holding above strong support at the end-2022 low of 0.8600. Still, this wouldn’t necessarily mean that the downtrend is reversing – it could, but for that the cross would need to initially break above the 89-day moving average, coinciding with the upper edge of a declining channel since mid-2023. For a sustained rebound to occur, the cross would need to clear the June high of 0.9100.

EUR/CAD: consolidation within a bullish phase

EUR/CAD has remained sideways for much of this year. However, there is no sign of a reversal of the bullish structure that began last year. The cross holds quite strong support on a horizontal trendline from early 2023, slightly above the lower edge of the Ichimoku cloud on the daily charts (at about 1.4000). Only a break below 1.4000 would confirm that the upward pressure had faded.

EUR/CAD daily chart

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