The USDCAD crashed by close to 200 pips yesterday as the BOC delivered on its promise of rate hike and as we had mentioned in our forecast yesterday, a hawkish BOC would mean that the CAD would gain in strength in a huge manner and thats what happened yesterday. The pair has been on a downtrend for the past couple of months when it has fallen by over 1000 pips and it has been the biggest mover in the currency markets over the last couple of months by a long way.
BOC Delivers What It Promised
The BOC showed how a interest rate hike needs to be signalled and delivered and this needs to go into the textbooks. This was the first rate hike in Canada in the last 10 years but the BOC had signalled it very clearly more than a month back. Since then, we have seen the CAD gain in strength in a steady and strong manner all across the markets and this controlled reaction has helped the BOC to study the impact before, during and after the rate hike. A sudden rate hike would have caught the markets by surprise leading to panic but the BOC has avoided that by clearly signalling the hike and making sure that it delivers on it.
Yesterday, the BOC hiked the rates to 0.75% from 0.5% and the accompanying statement and the press conference were also hawkish, clear and direct where they said that they would be studying the impact of higher interest rates very closely before deciding on the next course of action. This led the USDCAD pair to crash through 1.28 and it trades just above the 1.27 region as of this writing. The pair is likely to continue to trade in a bearish bias with some corrective bounces but the strength in the CAD and hence the bearish trend in the pair is clear.
Looking ahead to the rest of the day, we could see the pair coming under pressure further today as the markets continue to respond to the hawkish rate hike from the BOC. The weak dollar is also not helping matters too much and unless Yellen has something hawkish to say, we could see the USDCAD pair correcting further.
This article was originally posted on FX Empire