BOC Policy Meeting Failed To Support The Loonie Higher

The Loonie (CAD) was traded lower overall against the dollar on Wednesday, after the Bank of Canada (BOC)’s policy meeting failed to deliver confidence towards the nation’s economy. The pair of USD/CAD was falling initially to a three-week low near 1.2600, before paring all its losses back above 1.2650.  

The BOC left its overnight cash rate unchanged at 0.25%, judging that the Canada’s economy continues to require an adequate monetary policy support going into 2022. The BOC emphasized on its commitment to keep interest rate low until overall slowdown in the economy diminishes while boosting inflation above the 2% target. According to the bank’s projection, inflation target is expected to be achieved in the middle quarters of 2022.

Furthermore, the BOC stated that the recent fall in gasoline prices, which contributes strongly to the oil exporting nation’s economic revenue, had kept core inflation pressured. While recent positive news regarding the Omicron Covid-19 variant had ease market fears, restriction son air traveling could pressure oil price while dragging the Loonie’s appeal lower.  

Nonetheless, the recent rebound in crude oil prices following an upbeat research on the Omicron variant had allowed the Loonie to rebound against a stronger US dollar, after falling to more than a three-months low last week. The outlook for the Loonie ahead will be highly dependent on the oil market performance, and the uncertainties surrounding the Covid-19. 

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From the technical front, USDCAD in its D1 timeframe was traded lower while currently testing its 23.6 Fibonacci support near 1.2650. The pair attempted a breakout on Wednesday, before paring its losses back above its support zone. MACD, showing a bearish momentum and the formation of death cross, suggests the pair to extend lower after successfully closing its candle below the 1.2650 support level. Investors can monitor for potential short positions following the breakout, or potential long positions should the pair rebounds from the support level.