The Bank of Canada maintained in the statement that it intends to remain cautious with regard to future adjustments of monetary policy, taking into account the incoming data. This cautious approach is perceived as slightly dovish, as more satisfaction was expected from the weakening of risks around negotiations on the Nafta agreement, hence the USD/CAD jump above 1.26.
In the Monetary Policy Report, a large part was devoted to growth prospects with less focus on inflation. For example, the bank no longer expects a positive contribution of exports to GDP (0 percent against earlier forecasts of 0.6%). So this part has a bit dove overtones because it gives the field a less aggressive tightened in the following months. On the other hand, the increased GDP forecasts smuggle some optimism about the economic outlook for the future. The fact that BoC remains in the cycle of increases, confirms leaving the sentence in the statement that "over time higher interest rates will be justified".
To sum up, for today BoC is disappointing with high expectations, but in the medium term, the bank should be on its way to a hike in July. From the CAD point of view, the profit from the rally from 1.31 has now a dominant influence on the course, but when the dust falls CAD still remains the currency with good prospects for the rest of the year.
Let's now take a look at the USD/CAD technical picture at the H4 time frame. The market has broken above the technical resistance at the level of 1.2620 and made a new, local marginal high at the level of 1.2657. Currently, the price is testing the support from above, but the outlook is still bullish. If the market will continue to bounce, then the next target might be at the level of 1.2730. The positive and strong momentum after the breakout is suporting the short-term bullish outlook.
