The Canadian dollar looks set to break its six-day losing streak this week as investors react to the Fed’s interest rate decision on Wednesday, July 30th. The Fed was widely tipped to cut interest rates by 25 basis points in an effort to stimulate the U.S. economy in the face of strong headwinds affecting the global economy.
Canada Holds Steady
The move is in stark contrast to the Bank of Canada which diverged from other major central banks earlier in July when it chose to keep the interest rate on hold.
The head of the BOC, Stephen S. Poloz, stated that the bank had no immediate intention of easing monetary policy and left rates unchanged at 1.75 per cent. As a result, the rate cut by the Federal Reserve will cause the U.S. Dollar to weaken against the Canadian Dollar.
Strengthening Oil Prices Add To The Mix
Any move could be further amplified by rising oil prices which continue to strengthen on the back of increased tensions in the Middle East. The seizing of a British registered oil tanker by Iran threatens oil supplies in the region which could put pressure on oil prices over the coming weeks.
With oil being one of Canada’s leading exports, the Canadian dollar is heavily influenced by the short-term spot price of oil.
WTI Crude oil held support at $55.71 last week before climbing to resistance at $57.15. Should that resistance level break this could be a perfect storm for traders looking to profit from short-term moves.
On Tuesday, July 30th the USD/CAD was holding resistance at 1.31757. The Fed rate cut could mean the U.S. dollar could fall back to the 1.31276 level. If the oil price breaks resistance it could cause USD/CAD to fall even further to the 1.30281 level, last seen on 19th July.
As always investors should keep a close eye on the news and watch for breakouts above key support and resistance levels. While no trade is guaranteed, monitoring support and resistance levels around key events such as the Fed monitory policy meeting can lead to profitable trades for astute investors.