The Canadian dollar weakened and dropped to six-year lows against the U.S. dollar on Wednesday after the Bank of Canada surprisingly cut rates by 25 basis points in an unexpected move, in response to the recent sharp drop in oil prices. The BoC lowered its overnight target rate to 0.75% from 1.0% previously.
The central bank said the recent rout in oil prices over the past six months would be negative for growth and underlying inflation in Canada. It expects lower oil prices to boost global economic growth, especially in the United States, while widening the divergences among economies.
The BoC said it now expects economic growth to slow to about 1.5% and the output gap to widen in the first half of 2015. Inflation is also expected to fall below the bank’s target during the coming year, before moving higher again in 2016. The bank said consumer inflation was already reflecting the fall in oil prices.
“The negative impact of lower oil prices will gradually be mitigated by a stronger U.S. economy, a weaker Canadian dollar, and the Bank’s monetary policy response” the bank said in a statement.
Intraday bias remains on the upside as 21 and 55 EMA’s are crossed northward on the 1 hour, 4 hours, daily, weekly and monthly time-frames signaling a strong bullish continuation trend. Also SSRC (stocahstic), MACD momentum oscillators are still signalling bullish continuation in the currency pair. However the RSI shows the market is overbought so we might wait for a decent retracement and buy the dips. Am still expecting more rise to 1.25000 psychological zones.
On Friday investors would be watching closely the Canadian CPI and Retail Sales.