The Bank of Canada hiked the overnight rate from 1.00% to 1.25% yesterday, just as expected by the market consensus. This interest rate hike was previously priced in by market at 90%. In the BoC Rate Statement, the bank stressed that the economic situation justifies further increases, but high private indebtedness and growing concerns about the future of NAFTA agreement are the main factors to slow down the rate of normalization. Therefore, this rate hike was very familiar to last Bank of England interest rate hike, which was a "dovish" and conditional hike.
There is no question that the Canadian economy, in general, has improved significantly on field of the retail sales, GDP growth, CPI, and employment activity over the last couple of months, nevertheless the BoC had more options than to raise interest rates immediately such as signaling plans to tighten in March – a "hawkish" hold. It will be very interesting to watch the BoC decision next time as there is still a possibility of a cut if the economic conditions worsen.
Let's now take a look at the USD/CAD technical picture at the H4 time frame. After an initial spike, the market reversed back to the consolidation zone and it still sits there today. None of the important levels was violated and the momentum has switched to neutral. The nearest technical support is seen at the level of 1.2350 and the nearest technical resistance is seen at the level of 1.2556.
