BoC tweaks monetary policy stance

Although headline inflation in Canada has slowed in recent months, owing primarily to lower energy prices, the latest Canadian core inflation, excluding food and energy prices, is expected to remain above 3% through the fourth quarter of this year, undermining market expectations that the Bank of Canada will cut interest rates soon.

As service costs and wages continue to rise, the BoC anticipates that headline inflation will fall to 3% this summer and take some time to reach 2%. This was partly caused by a tight labor market and stronger-than-anticipated first-quarter economic growth.

As a result, after leaving interest rates steady in April, the BoC forecasts that this stringent policy will be maintained for an extended period of time and has ruled out the chance of a rate drop this year. The increase in expected inflation is another reason the BoC is cautious about decreasing interest rates. Investors subsequently altered their views and predicted that the Bank of Canada would cut interest rates in the fourth quarter of this year rather than June, as previously forecast.

The dollar pair, on the other hand, was marginally weaker on Thursday after the Federal Reserve lifted interest rates another 25 basis points to 5%-5.25%, a 16-year high and signaled that it may stop hiking the rate in June.

While US inflation has begun to cool, a strong labor market is likely to push inflation higher. In April, the service sector, in particular, continued to rise due to increased new orders and rising exports, placing a lot of pressure on prices. While the business sector continues to face rising costs, indicating that inflation may remain extremely sticky.

However, at the most recent meeting, the Fed made no clear commitment to ending the tightening cycle and emphasized that each subsequent set of economic data will continue to play a large role in the Fed's monetary policy decisions. As a result, the US dollar recovered from session lows after falling to record lows shortly after the meeting statement was announced, and is projected to remain constant and somewhat stronger than the Canadian dollar.

Data for Technical Analysis (5H) CFD USD/CAD

Resistance : 1.3536, 1.3544, 1.3555

Support : 1.3514, 1.3506, 1.3495               

5H Outlook

Source: Investing.com                             

Buy/Long 1 If the support at the price range 1.3506 - 1.3514 is touched, but the support at 1.3514 cannot be broken, the TP may be set around 1.3537 and the SL around 1.3501, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3536 - 1.3544, TP may be set around 1.3555 and SL around 1.3509, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3536 - 1.3544 is touched, but the resistance 1.3536 cannot be broken, the TP may be set around 1.3507 and the SL around 1.3549, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3506 - 1.3514, TP may be set around 1.3495 and SL around 1.3531, or up to the risk appetite.       

Pivot Points May 05, 2023 04:13AM GMT

Sources: Investing 1, Investing 2