CAD Strengthened After Statements from the Head of the Bank of Canada

FXOpen

The head of the Bank of Canada, Tiff Macklem, stated yesterday that monetary policy needs more time to ease price pressures.

He noted that the main problem in suppressing inflation is housing costs. “Housing affordability is a significant problem in Canada—but not one that can be fixed by raising or lowering interest rates,” said Tiff Macklem.

It is worth noting that the efforts of the Bank of Canada have reduced inflation in the country from its highest level of 8.1% in June 2022 to 3.4% in December 2023. It is possible that the path to the target rate of 2% may take more time. And then rates will remain high for longer, as the head of the Bank of Canada suggests. Reuters writes that the first rate cut may only come in the summer.

The market reacted with the strengthening of the Canadian dollar to Macklem's relatively hawkish rhetoric.

The USD/CAD chart shows that:
→ The USD/CAD price declined, making a false break below the level of 1.3535, which served as resistance in January – this is a sign of insufficient demand.
→ At the same time, point C formed, which is approximately at the 50% level of the decline from A to B.

The MACD indicator demonstrates bearish dynamics, giving reason to believe that bears may become more active and return the USD/CAD price within the framework of the descending trend (shown by the red channel).

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