The Canadian Dollar (CAD) faced market turbulence following the Bank of Canada's (BoC) recent interest rate decision. Although the central bank chose to keep interest rates unchanged on October 25, the market's response and the BoC's statement have raised questions about the CAD's future direction.
The BoC's stance is highly dependent on data, and its statement suggests a willingness to consider additional rate hikes. Several key factors support this position. Firstly, the bank closely monitors heightened domestic inflation risks, a concern amid the ongoing global economic recovery. Additionally, the BoC factors in higher oil prices, a major Canadian export. Furthermore, Canada's tight labor market, with demand for workers exceeding supply, contributes to the bank's hawkish outlook.
The market swiftly reacted to the BoC's decision, leading to a weakening of the Canadian Dollar against many of its counterparts. The adjustment in market expectations regarding the likelihood of another interest rate hike played a significant role in this shift. Traders appeared to reevaluate their expectations for future rate increases, leading to the initial decline of the CAD.
One noteworthy aspect of the BoC's statement was the mention of stagflation, characterized by stagnant economic growth and rising inflation. This typically does not support a country's currency. Although the bank acknowledged lower growth projections, it also raised its inflation forecasts, creating an economic environment that can be challenging for the CAD.
However, it's essential to note that despite the BoC's cautious stance, there is evidence that another rate hike is not entirely ruled out. The central bank has stressed its desire to see a downward trend in core inflation, indicating concerns about slow progress toward price stability and increased inflationary risks.
The GBPCAD price is currently declining toward our designated buy entry at 1.67, representing a support level during the pullback. This aligns with both the 50% Fibonacci retracement and the 61.8% Fibonacci projection, indicating a convergence of Fibonacci levels at our buy entry point. Consequently, we anticipate a bullish reversal and a price bounce from this level. To manage potential losses, our stop-loss order is positioned at 1.6600, just below the support level of the recent swing low and the 100% Fibonacci projection. On the upside, our take-profit level is set at 1.7000, corresponding to the resistance level of the recent swing high.
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