CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Bank of Canada Delivers

Bank of Canada Delivers

Yesterday in our BOC preview, we noted that if the Bank of Canada were to cut rates today it would most likely be on the back of global stimulus due to the coronavirus, and less about the Canadian  economy itself.  Indeed, the Bank of Canada did cut rates today by 50bps from 1.75% to 1.25% (the lowest level since mid-2018) and noted that it was primarily because the coronavirus would be a negative shock to the economy.  The Committee would continue to monitor developments and adjust monetary policy further if necessary. 

USD/CAD went bid after the announcement, even though price had been moving higher since yesterday in anticipation of a possible rate cut.  The headline expectation was for unchanged at 1.75%, however after the US Federal Reserve surprisingly cut rates by 50bps, fx markets began pricing in a BOC cut as well.  50bps was more than markets hoped for and this sent USD/CAD to resistance at the 127.2% Fibonacci extension from the highs from November 20th, 2019 to the lows on December 31st, near 1.3430.  Above there, is resistance at Friday’s highs near 1.3465.  Horizonal support comes across at 1.3330, and dips to 1.3250 are likely to be bought, as trendline support and horizontal support meet near that level.

Source: Tradingview, City Index

As Canadian rates sit at 1.25%, higher than most of G7 countries (technically, US targets between 1.00%-1.25%), markets may begin to price in another rate cut by the BOC.  If such a scenario were to occur, USD/CAD could continue moving higher. On a daily timeframe, it’s easy to see how price has been moving higher off the December 31st lows and pulled back at resistance near 1.3330 to the 200 Day Moving Average as the RSI became overbought, forming a flag formation.  On February 21st, price broke out of the flag.  The target for a flag the length of the flagpole added to the breakout point of the flag.  In this case the target is near 1.3590, just above the horizontal resistance from May 31st, 2019.  Of course, nothing moves in a straight line, and a pullback would give the RSI room to unwind as buyers may look to step in and buy the dip.

Source: Tradingview, City Index

Traders now will be waiting and watching as the coronavirus continues to spread across the globe. With rates at 1.25%, Canada still has room to cut.   If the virus continues to plague global growth, including Canada, there may be more ahead from the Bank of Canada.


StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024