The Bank of Canada is on the brink of another rate cut today. This will be the second straight rate cut if the BoC decides to cut today. Inflation has slowed down significantly over the last year, while now unemployment and growth have started giving warning signs. The BoC was one of the first central banks to begin the rate hiking cycle, and now it is again one of the first to start cutting rates. Governor Macklem sees a soft landing, but unemployment has risen by almost 1% in the last 12 months. USDCAD is confined to a tight zone with the prospect of a retreating dollar index and a weaker Canadian economy. The falling oil prices and recent wildfires are also not helping the CAD either.
(USDCAD Daily Chart)
USDCAD has been in an uptrend channel since the first half of 2021, with the 1.39 resistance confining upward moves for almost two years. The currency has been confined to an even tighter zone over the last four months, unable to find a clear direction. The short-term resistance at 1.38 is being tested ahead of the BoC decision. If markets interpret the central bank’s stance as dovish, CAD bears might attempt to test the 1.39 resistance for the fifth time in the coming days. However, unless it is broken, the contraction might continue.
