Prior to today’s rate decision from Bank of Canada, we had seen a run of poor economic data from the North American nation. So, the central bank was always likely to drop its previous hawkish bias in favour of a neutral outlook, mirroring the Fed’s shift to neutral, as my colleague Matt Weller wrote in his preview article HERE. Traders were already looking for the BOC to remove the warning about rising interest rates over time, from its statement. Hence, the Canadian dollar was weakening prior to today’s rate decision. Well, as it turned out, the BOC was indeed rather dovish as it noted that:
- There was “increased uncertainty on timing of future rate increases”
- Q4 economic slowdown “was sharper, more broadly based than forecast”
- It appears the Canadian economy will be “weaker in 1H 2019 than forecast”
CAD/JPY particularly weak
As a result of the dovish policy statement, the Canadian dollar slumped. It wasn’t helped by the fact that the Ivey PMI dropped to 50.6 from 54.7 the month before. What’s more, oil prices fell, which further weighed on the commodity currency. With stocks also struggling as we noted HERE, HERE and HERE, the Canadian dollar’s decline was more pronounced against the safe haven yen. The USD/JPY meanwhile also eased back from that 112.10 resistance level we noted previously.
From a technical point of view, the CAD/JPY has broken its bullish trend and key support at around 83.70, a level which is now likely to be the first major resistance on the daily time frame. As things stand, therefore, the path of least resistance is to the downside with the Fibonacci levels being the next objective downside targets, as per the chart below.