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The Canadian dollar soared today on the back of the Bank of Canada’s monetary policy announcement. Although interest rates were left unchanged, the BoC made a u-turn in their statement by dropping the reference to being “cautious on rates” and removing the language that pertains to the need for “monetary policy accommodation.” With inflation “likely to be a bit higher in the near term,” and activity “a little stronger than projected,” the BoC expects “solid wage growth” to contribute “positively to housing and consumer demand.” We believe that the Canadian dollar will continue to benefit from this shift in sentiment, leading to further profit taking in USD/CAD.

On a technical basis, USD/CAD has fallen below the first standard deviation Bollinger Band. Although there’s some support at the 20-day SMA near 1.2850, we believe that USD/CAD will fall to at least 1.2790, the 38.2% Fibonacci retracement of the 2018 rally and the first standard deviation Bollinger Band and most likely to the May low near 1.2725.