Canadian Dollar Continues to Soar on Support from BOC’s Senior Official’s Hawkish Comments

The Canadian dollar soared on Tuesday after having touched the strongest level in about two months versus the dollar on Monday. The loonie was supported by rising possibility that interest rates might go up sooner than expected.

The pair USDCAD nose-dived by more than 0.3 percent on Tuesday to trade around C$1.3285 per dollar – the lowest level since April 17th, following a drop of more than 1 percent on Monday. Canadian dollar got a lift after Bank of Canada senor deputy governor Wilkins, during her speech late Monday, said that a rate hike could come sooner than anticipated.

On the other hand, the dollar held steady against a basket of currencies as investors were awaiting the U.S. Federal Reserve’s two-day policy meeting starting set to start later on Tuesday. The central bank is widely expected to raise interest rates for the second time since the start of this year, rising its fed funds target range by a quarter point to a range between 1.0%-1.25%.

Investors will also be watching for any fresh hints on the pace of further tightening in the months to come and on the Fed’s plans for trimming its balance sheet which might be revealed in a 30-minute press conference of Fed Chair Janet Yellen following the rate decision.

Higher rates could boost the dollar, sending the greenback higher against its rivals, including the loonie.

There will be no economic data for the Canadian dollar on Tuesday but the U.S. Bureau of Labor Statistics is scheduled to release data on Producer Price Index for May which is forecast to remain unchanged on a monthly basis.

Fig: USDCAD D1 Technical Chart

USDCAD has declined for a third session in a row. The downward rally has sent the pair below a significant support at 38.2% Fibonacci level while the short-term DMA20 has crossed the long-term DMA50 from above, which indicates a strong bearish momentum in the market. ADX is soaring with a widening gap between the -DI and +DI lines. The pair is expected to edge lower and may test a support at 1.32200 – the lowest level since April 13.

Trade suggestion

Sell Stop at 1.32800, Take profit at 1.32200, Stop loss at 1.33000

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