USD/CAD Risks Larger Pullback As Post-BoC Rally Stalls, RSI Flops

The USD/CAD rally following the Bank of Canada (BoC) meeting appears to have stalled as the exchange rate snaps the series of higher highs & lows from the start of the month, with the Relative Strength Index (RSI) highlighting a similar dynamic as the oscillator flops ahead of overbought territory.

Image of daily change for major currencies


Image of daily change for usdcad rate

The 55.9K expansion in Canada Employment appears to have curbed the recent rally in USD/CAD as the above-forecast print highlights a robust labor market, but the development may do little to influence the monetary policy outlook as the BoC asserts that ‘consumer spending and the housing market were soft, despite strong growth in employment and labor income.’

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Image of bank of canada interest rate

With that said, the BoC may continue to change its tune over the coming months as ‘it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January,’ and Governor Stephen Poloz & Co. look poised to retain the current policy at the next meeting on April 24 amid the ‘increased uncertainty about the timing of future rate increases.’ As a result, the Canadian dollar stands at risk of facing a more bearish fate over the near-term as the BoC warns that ‘the slowdown in the fourth quarter was sharper and more broadly based,’ and the central bank may continue to alter the forward-guidance for monetary policy as the ‘Governing Council will be watching closely developments in household spending, oil markets, and global trade policy.’

In turn, waning bets for a BoC rate-hike reinforces a constructive outlook for USD/CAD, with attention now turning to the fresh data prints coming out of the U.S. economy as updates to the Retail Sales report show household spending rebounding 0.2% at the start of 2019 after contracting a revised 1.6% in December.

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