USD/CAD looks to close volatile day in red above 1.32 mark
- BoC leaves policy rate unchanged as expected, recognizes the negative impact of low oil prices.
- FOMC minutes confirms the Fed's dovish stance.
- US Dollar Index remains on track to close the day at multi-month lows.
The USD/CAD pair's volatility heightened in the second half of the day as markets reacted to the BoC's monetary policy statement alongside Governor Poloz's comments and the FOMC's dovish meeting minutes. After touching its lowest level in more than a month at 1.3180, the pair staged a modest rebound and was last seen trading at 1.3215, losing 0.45% on a daily basis. With today's drop, the pair looks to close the sixth straight day with losses.
Earlier today, the BoC decided to keep its policy rate unchanged at 1.75%. In its monetary policy statement, "The drop in global oil prices has a material impact on the Canadian outlook, resulting in lower terms of trade and national income," the Bank noted. "There are increasing signs that the US-China trade conflict is weighing on global demand and commodity prices." Commenting on the policy announcement, Governor Poloz explained that the Boc's decision to keep the rates on hold showed that the Bank was decidedly data-dependent.
Despite the BoC's cautious tone, however, the pair lost its traction as dovish comments from Fed officials Bostic and Rosengren weighed on the dollar. Confirming the dovish shift, the FOMC in its meeting minutes said "participants expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier." The US Dollar Index, which was already under a bearish pressure, continued to push lower following the FOMC's statement and touched its lowest in more than two months at 95.15. As of writing, the index was down 0.75% on the day at 95.18.
Reviewing the Fed's publication, "Minutes of the December FOMC confirmed data-dependence and patience and revealed that the Fed is getting closer to the end of the hiking cycle," said Anders Svendsen, Research Analyst at Nordea Markets.
Technical levels to consider
The initial support for the pair aligns at 1.3180 (daily low) ahead of 1.3125 (Nov. 16 low) and 1.3050 (Nov. 2 low). On the upside, resistances could be seen at 1.3255 (daily high), 1.3320 (Jan. 8 high) and 1.3375 (50-DMA). Meanwhile, the RSI indicator on the daily chart fell below the 30 mark, showing oversold conditions for the pair in the near-term and suggesting that a technical correction could be witnessed before the pair continues its downtrend.