Bank of Canada stuns the market

7 September, 2017

The Canadian dollar was the star of today's trading show as the Bank of Canada (BoC) shocked the market by lifting interest rates to 1.00%, it what was seen as a bit of a coin flip as the market had been expecting interest rates to remain flat at 0.75%, what they got was a massive rise in the CAD against all major pairs. For the Bank of Canada this rise in interest rates was underpinned by the current growth within Canada and even though they're below the 2% inflation target they certainly felt it was warranted given the 4% growth rate that has been seen in the economy. For many in the market this was a very hawkish move with long term consequences for the CAD; especially against the USD. While heavily underpinned by the commodity sector, primarily: oil, gas and mining. It seems likely that there could be further economic expansion in the long run, but this also hinges on NAFTA holding together which Trump has talked about altering. Alternatively though, there is a backlog of work to be done in the political system in the US so it may all be some time off.

For the USDCAD there was only one way to go after the decision and that was down.. with the market shocked like that it quickly dropped 250 pips in an unprecedented move. So far support is holding at 1.2219, but it really will be a question if can it for much longer with the aggressiveness of the CAD. The next key level down can be found at 1.1949 and is likely to be the target of traders looking to push their bearish sentiment further down the charts. In the case of a pullback I would look to resistance at 1.2429 as a strong level that could weather some USD strengthening, but it would be hard pushed to be cracked after the recent BoC announcement.

One economy markets will be watching tonight will be the Australian dollar which has been clawing its way up the charts after last week's positive employment data and of course USD weakness. Tonight however, will be a big one for the AUD as retail sales data is due out and many will be looking for a strong signal here to push the Reserve Bank of Australia into action and look at lifting rates. The current forecast is 0.2% but the market has been known to surprise so markets will be looking to pounce on a surprise.

For the AUDUSD, it's a case of battling to get above the 80 cent mark which continues to act as strong resistance. It recently had some very solid attempts, all of which failed as the bears came back into the market. In the event it does fail to break through this would be a very bearish signal and I would expect support levels at 0.7901 and 0.7821. Either way the AUD is set for some volatility tonight as markets play of economic data.


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