USD/CAD has been trading with impulsive gains. The price broke above the corrective range around 1.3450 with a daily close recently. The Bank of Canada decided to put overnight target rate on hold at the latest policy meeting. Nevertheless, the central bank expressed optimism about the domestic economy, thus supporting CAD.
The US Federal Reserve confirmed its intention to keep the interest rate unchanged till 2020. Some experts do not rule out a scenario of a rate cut. The Fed has completed the cycle of monetary tightening. This view is expressed in the latest poll of more than 100 economists conducted on April 22-24. A larger number of respondents now predict a rate cut by next year. It would need inflation to run hot for a prolonged period to justify another rate hike, especially after the long cycle of rae hikes. In light better-than-expected economic data, the latest GDP growth forecast for the January-March quarter was upgraded to an annualized 2.0 percent compared with 1.6 percent predicted in the previous poll.
Moreover, the US-Japan trade talks are going on currently. There are speculations that trade relations are not related to monetary policy. Traders and analysts are discussing the matter that US President Donald Trump is not quite happy about Japan's trade surplus and wants better trade terms in favor of the US.
Today the US is due to release preliminary GDP data for Q1 2019 which is expected to be unchanged at 2.2%. According to the observation, this forecast is the lowest one since April 2018. If this forecast comes true, USD could lose ground in response. Besides, flash GDP Price Index is expected to decrease to 1.3% from the previous value of 1.8%.
On the CAD side, the Bank of Canada kept the overnight target rate unchanged at 1.75%. Citing Governor Poloz, there are chances of a rate hike in the coming months. The Bank of Canada has raised interest rates five times since July 2017. The interest rates were left steady on Wednesday amid global trade concerns, a slumping domestic oil sector, and a weak housing sector. Such factors have weighed on the Canadian economy. According to Governor Poloz, the economic slowdown due to external headwinds is expected to be temporary and the worst scenario has been already over. It indicates that the time is ripe to proceed forward. The Bank of Canada estimates its neutral range is between 2.25 and 3.25 percent. The overnight interest rate is currently at 1.75 percent.
To sum up, the optimistic approach from the Bank of Canada attracted certain market sentiment toward CAD despite keeping interest rates unchanged. CAD also finds support from a steady rally of oil prices. In this context, CAD is going to assert strength over USD. Nevertheless, USD has stronger fundamentals. So, the pair could pull back soon. It depends on actual figures in the crucial economic reports from the US.
Now let us look at the technical view. The price recently rejected off the 1.3500 price area with a daily close. The price could push lower towards 1.3400-50 support area before it resumes a climb in the coming days. After the break of the trading range, a retracement is expected inside the overall bullish momentum. As the price remains above 1.3400 area with a daily close, it indicates further upward pressure.