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XTB TRADEBEAT

Unexpected rate hike sends CAD soaring

Summary:

  • Bank of Canada unexpectedly raise overnight rate by 0.25%
  • Second successive hike after 7 hears of no moves
  • Canadian dollar soars across the board

The second G10 central bank rate decision of the week has caused huge moves in the markets with the Canadian dollar rapidly appreciating across the board after the Bank of Canada (BOC) unexpectedly raised rates by 25 basis points. 

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 CAD is soaring following the announcement. The currency is appreciating by more than 1% against all of its peers. Source: xStation

The overnight rate is now 1.0% after the second successive increase following seven years without a rate hike. Only 6 of the 33 economists surveyed by Bloomberg expected an increase in the interest rate and the reaction in the Canadian dollar suggests that the markets have been caught off guard too.

The USDCAD has dropped by almost 300 pips from just above the 1.24 handle prior to the announcement. The low of 1.2134 came within seconds of the news being released and whilst there has been a move away from this level the market remains firmly lower on the day. 

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 USDCAD dropped almost 300 pips straight after the release. Source: xStation

 From a longer term perspective the downtrend seen since the market topped this year in May looks firmly intact. You have to go back to May 2015 to find lower prices and should the daily low of 1.2134 fail to hold then a move to 1.2000 is possible in the coming days. 

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 USDCAD has fallen to its lowest level in more than 2 years following the release. Source: xStation

You may recall that one of our trade ideas for Q3 involved shorting the NZDCAD. This market has been in a near constant downtrend since the beginning of the quarter and is currently trading at its lowest level since May 2016.  

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