The Bank of Canada had an interest rate announcement on Wednesday, but the most important thing to take away from the meeting is that interest rate hikes may be coming quicker from Ottawa than originally anticipated. That being said, the US dollar is also struggling in general, and we have oil pushing it ever so higher over the longer term. With that being the case, it does make sense that we would see this pair continue to drop as the USD/CAD pair is in the process of forming a bit of a bearish flag.
That being said, if we were to break down from here it could trigger the “measured move” down to the 1.20 handle. The 1.20 handle is a large, round, psychologically significant figure and an area we had bounced from quite significantly in the recent past. Any break below there would be a massive breach of support, but it does look like the market is trying to at least get back down to that area in order to test the issue.
To the upside, the 1.25 handle should continue to offer plenty of resistance, so I do not think that we are anywhere getting close to breaking above there. Any rally at this point time will probably end up being a nice selling opportunity, and the most likely scenario would be that value hunters would come back into this market and start shorting yet again to pick up “cheap Canadian dollars.” Furthermore, oil looks as if it is ready to break out yet again, and that will have a major influence on what happens next when it comes to this market as Canada is a major exporter of crude.
This pair does tend to be very choppy at times, so you will have to be significantly patient to take advantage of any type of move that does in fact occur. In the short term, I think that you need to be aware the fact that we are in the midst of the consolidation area, but it clearly looks to me as if we are trying to digest the massive selloff that we have recently had. The back-and-forth nature of this pair does make sense, as the two economies are so intertwined.
