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US Canadian Dollar Dollar Exchange Rate Forecast: Sell The USD/CAD Rally

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The Canadian got a big boost on Tuesday moving up to trade above 81 cents US ahead of a Bank of Canada decision on interest rates

The Bank of Canada have made it clear that any future interest rate decision will be made exclusively on economic data releases, and as such have not given any further signals to monetary policy decisions. Bank officials also want to see what type of meaningful impact the second rate hike has on its citizens carrying an inordinately high level of debt.

"Recent economic data have been more vigorous than expected, which supports the point of view of the Bank, according to which the growth in Canada is becoming more widespread, and more autonomous", stresses the central bank in a press release published Wednesday morning. Futures trading was assigning about a 40 per cent chance of an increase. Crude oil is firmer on the day after a strong bounce on Friday but the rate/ spread story is the key driver for the CAD at the moment.

The bank didn't repeat language from previous statements about the current degree of stimulus being appropriate, which may suggest it will stay on its tightening path.

The rate hike seemed to unsettle those holding shares of the country's banks, whose earnings growth depends in part on homebuyers taking out more loans. He changed his forecast last week to correctly predict therate increase. They added the central bank might also want to gauge market reaction to Federal Reserve plans to shrink its balance sheet, and contain any further upward move in the value of the Canadian dollar, which threatened to weigh on export growth.

"The Bank has said that future increases will not be "predetermined", which aims perhaps to indicate to the markets that they will not increase the rate a quarter point at each meeting, " wrote CIBC in a note to its clients.

The Bank of Canada is raising the cost of borrowing money, which is bad news if you're among the ranks of Canada's heavily indebted.

In a statement posted to the monetary authority's website, rate-setters in Ottawa referenced recent stronger-than-expected economic growth in the North American country twice as one of the reasons behind the decision they took on Wednesday.

In a statement, the Bank of Canada noted that consumer spending remains robust, "underpinned by continued solid employment and income growth".

The bank said there remains "significant geopolitical risks and uncertainties" around worldwide trade and fiscal policies that have weakened the USA dollar. Nevertheless, there is still some slack in the labour market while wage and price pressures are still more subdued tan historical relationships would suggest.

"A rising Canadian dollar without a really good lift from energy prices is tough on the energy sector, and it's tough on any commodity producers", said John Johnston, chief strategy officer at Davis-Rea.

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