On Wednesday evening, following remarks from the Bank of Canada, the Canadian dollar appreciated by 0.5%. The central bank maintained the benchmark interest rate at 5% during its regular meeting and continued to implement a quantitative tightening policy.
The Bank of Canada remains concerned about keeping inflation stable and wishes to see more evidence demonstrating a return to target levels from the current levels, which are above the historical average.
The reason behind the Canadian dollar's support is that the remarks did not imply an imminent interest rate hike - indicating that Canada is evidently ready for a long pause.
Alex Kuptsikevich, a senior analyst at FxPro, noted that recent speeches by Powell and signs of a deteriorating economy also put pressure on the US dollar, contributing to the downward trend in the USD/CAD exchange rate.
Technically speaking, the USD/CAD has returned to 1.3500, the consolidation level from the end of March. A key test for USD/CAD will be the 1.3480 mark, which is the support level of the 200-day moving average. It is on the verge of being crossed from below by the 50-day moving average, forming a "golden cross". This signal often increases buying interest, which will be an important test of the strength of the recent bearish momentum.
Given that the euro's recent decline was also due to the US dollar weakening, the bearish trend may continue, marking the first weekly decline after nine consecutive weeks of gains.
Meanwhile, USDCAD might find significant support in the 1.32-1.3250 area, an area where the currency pair was pushed several times last year.
