BoC remains on hold, CAD strengthens

BoC kept its interest rate unchanged yesterday at +1.25% as was widely expected, however issued a rather hawkish accompanying statement. The statement dropped tis reference for the bank as being cautious and did not mention the NAFTA negotiations per se. The bank mentioned clearly that higher rates will be needed to keep inflation near target and that a gradual approach guided by incoming data will be taken, practically paving the way for a rate hike in the next meeting. Currently, CAD OIS imply a possibility for a rate hike of 63.56% in July. Overall, the CAD strengthened on the good news and it could strengthen even further should there be more signals for a possible rate hike in the future.

USD/CAD dropped yesterday breaking the 1.2985 and the 1.2915 support lines. We could see the pair stabilizing today and trade in a sideways manner, however financial data releases could set the pair under selling interest somewhat. Should the pair find buying orders along its path we could see it breaking the 1.2915 resistance level and aim for the 1.2985 resistance hurdle. Should it come clearly under selling interest we could see it breaking the 1.2860 support line and aim for the 1.2800 support barrier.