Prior to today’s rate decision from Bank of Canada, we had seen a run of poor economic data from the North American nation. So, the central bank was always likely to drop its previous hawkish bias in favour of a neutral outlook, mirroring the Fed’s shift to neutral, as my colleague Matt Weller wrote in his preview article.
Traders were already looking for the BOC to remove the warning about rising interest rates over time, from its statement. Hence, the Canadian dollar was weakening prior to today’s rate decision. Well, as it turned out, the BOC was indeed rather dovish as it noted that:
- There was “increased uncertainty on timing of future rate increases”
- Q4 economic slowdown “was sharper, more broadly based than forecast”
- It appears the Canadian economy will be “weaker in 1H 2019 than forecast”
CAD/JPY particularly weak
As a result of the dovish policy statement, the Canadian dollar slumped. It wasn’t helped by the fact that the Ivey PMI dropped to 50.6 from 54.7 the month before. What’s more, oil prices fell, which further weighed on the commodity currency.
With stocks also struggling as we noted, the Canadian dollar’s decline was more pronounced against the safe haven yen. The USD/JPY meanwhile also eased back from that 112.10 resistance level we noted previously.
From a technical point of view, the CAD/JPY has broken its bullish trend and key support at around 83.70, a level which is now likely to be the first major resistance on the daily time frame. As things stand, therefore, the path of least resistance is to the downside with the Fibonacci levels being the next objective downside targets, as per the chart below.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.