The Bank of Canada raises its key rate by 0.5% and the USD/CAD pair falls as expected

Categories: Central Banks, News | Published by: Martin Jekic
13/04/2022

The Bank of Canada raises its key rate by 50 basis points as expected and pushes the USD/CAD pair lower

The key rate at the Bank of Canada is now 1%, which is its highest level since the pandemic started in March 2020.

As expected, the Bank of Canada (BOC) raised rates today by 50 basis points. The overnight rate hasn’t gone up this much in 20 years. The key rate is now 1%, which is the highest it has been since the pandemic began in March 2020.

Also, the Bank of Canada said that starting on April 25, it would stop reinvesting the money from its bonds that were coming due. This would end its quantitative easing program. Due to the expected rise in inflation, Canada’s central bank said it will have to raise interest rates to neutral or above neutral.

When the statement came out, traders sold USD/CAD because they thought more interest rate hikes were coming. During the first 15 minutes of trading after the news came out, the price was very unstable, moving between 1.2625 and 1.2675.

USD/CAD 15 minute chart

usd/cad rate from the Bank of Canada on April 13, 2022

Since the middle of November 2021, the USD/CAD pair has been trading between 1.2453 and 1.2964 on a daily chart. On April 5, the price went as low as it could go and formed a hammer candlestick, which is a sign that a change could be coming. In fact, the price changed and went up. Since then, the price hasn’t looked back. Over the past 3 days, the price broke through a number of important levels of resistance. These things are:

  1. Horizontal resistance at 1.2604
  2. The 200-day moving average at 1.2622
  3. The rising trendline from June 1 at 1.2640
  4. The 50% Fibonacci retracement level (March 8 highs to April 5 lows at 1.2647)
  5. The 50-day moving average at 1.2660

2022-04-13 USDCAD per day

bank of canada exchange rate usd-cad 13-04-2022

Since the price went down after the Bank of Canada’s statement came out today, the price is now between 1.2604 and 1.2660. If the price goes up outside of the range, the 61.8 percent Fibonacci retracement from the highs on March 8 to the lows on April 5 at 1.2705 will be the first point of resistance. Above this point, the price could go up and test the highs from March 8 at 1.2901, then the highs from December 20, 2021 at 1.2665.

But if the price falls below 1.2604, the horizontal support is at 1.2540. Below that, support is seen at 1.2454, which is the low of the recent range, and then at 1.2402, which is the hammer low from April 5th.

Today, the Bank of Canada raised rates by 50 basis points, bringing the key rate to 1% and saying that more increases will be needed. The USD/CAD pair is stuck in a range between 1.2604 and 1.2660 right now. If the USD/CAD pair breaks out of this zone, it could give the markets clues about where it might go next.