Bank of Canada to help strengthen national currency

The USDCAD currency pair has finally pulled back from the monthly highs and is now stabilizing in the range of 1.342-1.35. The wave of powerful growth, which lasted for 3 weeks since late December, has come to an end. However, the further direction of the price movement remains unclear. The certainty should appear in the nearest week, when almost all leading central banks of Western countries will hold their meetings. The parade of meetings will start today.

On Wednesday, the Bank of Canada will be the first Western regulator to make a decision on monetary policy in 2024. Given such a high level of responsibility, officials will surely try to avoid any bold actions and statements in front of the public. There is little doubt that the key rate will remain at the current level of 5%, but the main question is what will happen next?

Given the rise in inflation in December, Bank of Canada Governor Tiff Macklem is unlikely to be prone to dovish rhetoric. Bloomberg analysts also draw attention to falling yields in debt markets, including Canada. So, investors and traders have already done some work on monetary policy easing, and the Canadian regulator now has no need to take a dovish stance.

In addition to the key rate level, market participants are also expecting an updated GDP and inflation forecast from the Bank of Canada. Rob McLister at Mortgage Logic warns the bank's officials against a hasty interest rate cut. According to him, a lot of people in Canada are now waiting for more loyal mortgage terms to buy a property because of record migration. This could potentially cause a new surge in inflation, which the Bank of Canada is trying to avoid. Therefore, the rates should remain at current levels until the summer.

In terms of technical analysis, there is a continued correction from last week's tops on the USDCAD daily chart. The RSI indicator has left the overbought zone, indicating further development of the price downward movement. The nearest target of the bears is Monday's lows, which are slightly below the level of 1.342.

Consider the following trading strategy:

Sell USDCAD at the current price. Take profit – 1.342. Stop loss – 1.35.

Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion