Despite US stock and bond markets closed in honor of President George H. W. Bush’s passing, we’ve seen a surprising amount of volatility in the FX market.

In overnight trade, the Australian dollar saw weaker-than-expected GDP growth figures (0.3% q/q vs. 0.6% eyed). This marks the slowest quarterly growth in two years and pushes back expectations for an interest rate hike further into 2020.

The bad news for commodity dollars carried over into the US session, with the Bank of Canada striking a dovish note in its monetary policy statement. As widely expected, the central bank left interest rates unchanged at 1.75%, but crucially, it noted that “there may be additional room for non-inflationary growth” and that “data show economy has less momentum going into Q4.” In addition, the BOC acknowledged the sharp drop in oil prices and indicated that policymakers expect CPI to ease further in the coming months.

Much like Fed Chairman Powell’s “just below” neutral comment, this dovish shift caught markets off guard. In contrast to the Fed though, today’s statement suggests that the BOC could leave interest rates unchanged at its next meeting in January. Readers should note that BOC Governor Poloz will speak on “the economic outlook, risks in Canada's financial system, and the December interest rate decision” tomorrow morning, so he’ll be able to refine the central bank’s message then.

Technically speaking, the dovish tone to the BOC’s statement drove the loonie to its lowest level against the US dollar in nearly 18 months. After briefly peeking below its bullish trend line on Monday, USD/CAD has staged a sharp rally off its lows.

Moving forward, traders will key in on tomorrow’s OPEC meeting as a major catalyst for the pair, with a larger-than-expected production cut potentially boosting both oil prices and the loonie, whereas a small cut could serve as a headwind. In any event, the near-term trend for USD/CAD continues to point higher for now, especially if bulls are able to break conclusively above previous resistance near the 1.3400 level.

Source: TradingView, FOREX.com