- The Bank of Canada (BoC) cuts its key rate to 3%, in line with expectations, briefly lifting USD/CAD.
- BoC Governor Tiff Macklem warns of trade conflict risks, lowers growth forecasts, and signals economic headwinds.
- The BoC ends Quantitative Tightening, revises inflation expectations, and suggests further rate cuts in March.
The USD/CAD surged to a six-day high of 1.4470 after the Bank of Canada (BoC) lowered interest rates by 25 basis points (bps) from 3.25% to 3%, in line with market expectations. However, as traders digested the BoC's monetary policy statement, the pair retraced to 1.4430, though it remains up 0.29% on the day.
BoC Cuts Rates Amid Cautious Economic Outlook
Following the rate cut, BoC Governor Tiff Macklem warned that a prolonged trade conflict could significantly harm Canada's economic activity. The BoC also revised its economic forecasts, projecting:
- Inflation at 2.3% in 2025.
- GDP growth of 1.8% YoY in Q4 2024.
- End of Quantitative Tightening (QT), signaling a shift in policy direction.
The Canadian swaps market now sees a 47% probability of another BoC rate cut in March, increasing speculation about further policy easing.
USD/CAD Technical Outlook
The USD/CAD initially cleared the R2 pivot, reaching 1.4470, just shy of the R3 daily pivot point, before retreating to the R1 level and stabilizing. While momentum has cooled, Macklem's upcoming remarks could spark fresh volatility.
Key Levels to Watch:
- Resistance: 1.4471, 1.4500, and the January 20 high at 1.4518.
- Support: 1.4394 (daily pivot point), followed by 1.4369 (S1 support level).
Traders will closely watch Macklem's statements ahead of the Federal Reserve's monetary policy decision, which could further impact USD/CAD direction.
