The Bank of Canada (BoC) may wait for a clearer Fed policy outlook to avoid a significant deviation in interest rates. Canada experienced an unexpected trade deficit of C$ 2.28 billion in March, while US equities surged following a less hawkish tone from the Federal Reserve.
The USD/CAD outlook shifted towards bearish territory due to Bank of Canada Governor Tiff Macklem’s hawkish stance. The Canadian dollar strengthened alongside a rebound in US equities, with investors eagerly waiting for the US nonfarm payrolls report for further insights on Fed policy.
BoC Governor Macklem emphasized the limits of interest rate divergence between the US and Canada, hinting that the BoC will wait for the Fed’s move to prevent a significant disparity. It is anticipated that the Bank of Canada may cut rates before the Fed, possibly in June.
Canada’s economy is showing signs of decline, with inflation easing faster than expected. Data revealed a surprise trade deficit as exports fell more rapidly than imports in March. Meanwhile, US equities rallied after the Fed’s decision to maintain rates and a less hawkish tone, easing concerns of imminent rate hikes to control inflation.
In terms of technical analysis, the USD/CAD price has dropped below the 30-SMA and is approaching a crucial support trendline at 1.3650. Bearish momentum is strong, with the RSI below 50, suggesting a potential break below 1.3650 with a target at the 1.3551 support level.