USD/CAD Falls to Multi-Year Lows as BOC Contrasts Dovish Fed and Oil Prices Climb

USD/CAD slumped to its lowest levels since February of 2018 in early trading on Thursday. The US dollar weakened against its Canadian counterpart amid diverging central bank policies, firmer oil prices and better than expected Canadian retail sales figures.

At Wednesday’s FOMC meeting policymakers maintained a dovish stance, keeping interest rates and bond-buying unchanged. Meanwhile, the Bank of Canada (BOC) has already begun to taper its asset buying. On April 21st, BOC Governor Tiff Macklem announced plans to scale back purchases of government debt by a quarter to 3 billion Canadian dollars. In addition, the central bank will begin considering an interest-rate increase in the second half of next year instead of waiting until 2023.

The dovish Fed stance gave a boost to the global reflation trade, with investors moving into assets like oil and riskier stocks that will benefit from a return to global growth.

Crude oil is one of Canada’s major exports and rising oil prices boost the Canadian dollar. On Wednesday, OPEC, Russia and their allies affirmed that they will stick to plans to raise output from May to July on an improving global out outlook for demand.

On Wednesday, Statistics Canada reported that retail sales rose 4.8% in February, beating analyst expectations of 4.0%. Core retail sales (excluding gas stations, motor-vehicle and parts dealers) rose by 3.8 per cent in February, marking the first increase in three months. The figures reflect in part the easing of restrictions that had been put in place to control the spread of the coronavirus.

Looking at the USD/CAD daily chart we can see a well defined downward trendline, providing potential support below. The 50 period simple moving average above represents potential resistance above.

The major 50% Fibonacci retracement level from the swing low to high on the monthly chart (going back to July 2011) lies at 1.2057.