USD/CAD trims losses on Friday but ends week sharply higher

• Best week for the pair since February
• The tone of the Bank of Canada sent the loonie to the downside 

The rally of the USD/CAD eased on Friday but the bullish trend remains intact. Price pulled back after hitting at 1.2915, the highest level since July 12. 

Consolidation ahead? 

USD/CAD was about to end Friday marginally higher and far from the highs, signaling a potential short-term exhaustion to the upside that could lead to some consolidation for the next sessions. 

The pair dropped toward 1.2850 on Friday amid a rally in crude oil prices. Still, it was about to post the seventh daily gain in a row. Over the week it gained 230 pips, having the best since February. 

The rally over the week was supported by a stronger US Dollar on the back of rising US bond yields. The loonie was already moving with a bearish bias and accelerated the decline after the Bank of Canada decision. It kept rates unchanged, as expected. 

“In the press release announcing the decision, the BoC acknowledged that “less monetary policy stimulus will likely be required over time,” but that it “will be cautious in making future adjustments to the policy rate.” In other words, further rate hikes will be forthcoming but the pace of tightening likely will be slow. In that regard, we look for the BoC to hike rates by a total of 50 bps next year”, said analysts from Wells Fargo. The tone of the statement lowered future rate hike expectations, sending the USD/CAD further to the upside. Next week will be the turn of the Federal Reserve. 

Levels to watch 

USD/CAD rose back above the 20-week moving average (1.2630) for the first time since June. The greenback needs to hold on above 1.2900 to gain momentum. To the upside, the area between 1.2970 and 1.3000 is a very strong barrier: a consolidation on top could open the doors to more gains. 

On the flip side, the bullish outlook is likely to remain intact as long as the pair holds above 1.2600. Before that level, support might lie at 1.2780 and 1.2690 (Oct 24 high).