USDCAD is nearing yearly high at 1.3945

As expected, the USDCAD currency pair continues to move upwards. Quotes are steadily recovering all the losses of the previous 2 months, coming closer to the annual high, set on August 5 at 1.3945. Technical indicators signal a strong overbought, but this doesn’t stop the bulls. Probably, the profit taking on long positions will start when the new high is established in 2024, and until then the USDCAD dynamics will still be dominated by the upward trend.

This week the head of the Bank of Canada Tiff Macklem is holding a series of speeches concerning monetary policy. In particular, journalists were interested in the motive of reducing the key rate by 0.5% at the meeting on October 23. Some analysts consider this move excessive: the cost of borrowing shouldn’t change so sharply in the absence of emergencies and severe economic stress. However, the head of the Canadian regulator has a different point of view.

According to Macklem, the Bank of Canada has the right to ease monetary policy more aggressively than usual, as the previous cycle of rate hikes was also very fast. In addition, he was unable to specify exactly at what point the key rate would become neutral without constraining or stimulating the national economy. Officials of the Canadian central bank estimate this value in the range of 2.25–3.25%, which could be reached as early as the beginning of 2025. However, if GDP growth remains weak, the rate level will have to go even lower.

Meanwhile, financial market participants are awaiting today’s release of US GDP data for Q3. Experts polled by Reuters expect the U.S. economy to grow at a rate of 3%, similar to the April through June period. Christopher Rupkey from FWDBONDS considers this value very strong. If the actual data coincide with forecasts, the stability of the U.S. economy will get another confirmation. Under such conditions, the Fed will slowly ease monetary policy, supporting the exchange rate of the national currency.

After the currency pair reaches the level of 1.3945, it’s worth thinking about closing at least part of long positions on USDCAD. Resumption of purchases is possible if there’s a corrective pullback of quotes.

The following trading strategy can be suggested:

Buy USDCAD at the current price. Take profit — 1.3945. Stop loss — 1.388.