BOC's Macklem discusses inflation risks; CAD strengthens

Bank of Canada Governor Tiff Macklem addressed inflation risks and the future direction of monetary policy following the central bank's rate decision. His remarks may affect the Canadian dollar's value.

• Inflation remains too high.
• Inflation is heavily concentrated in gasoline and oil prices.
• Risks are evolving, and the bank is ready to adjust monetary policy as necessary.
• The main concern for inflation is the situation in the Middle East, how long elevated oil prices persist, and how high they rise.
• We must remain focused on inflation; it is still running too high.
• The future path of rates will be determined by our inflation forecasts and the risks surrounding those forecasts.
• The recent bond market move indicates more than one factor at play.
• Central banks have limited tolerance for higher inflation. We are observing some transmission of global bond yields into Canada and will factor that in.

USDCAD is trading at fresh session lows as Governor Macklem highlights inflation risks. A lower USDCAD indicates the Canadian dollar is appreciating against the US dollar. His inflation concerns may lead traders to anticipate that Canadian interest rates will remain elevated for a longer period, supporting the CAD. However, US inflation and the Federal Reserve's policy outlook also influence the pair. Keep that in mind. Currency trading involves two currencies and two economies. At times, the dynamics for each can be similar.

Technically, sellers have pushed the price below the 200-hour moving average at 1.3858, shifting focus to the next key support level: the 200-day moving average at 1.3839. Moving averages assist traders in assessing direction and identifying areas where buying or selling may occur.

Why is 1.3839 significant? On both Friday and Monday, buyers stepped in near that moving average and pushed the price higher. These repeated bounces make it an important reference point. Buyers have defended the level previously. Can they do so again?

For novice traders, there are two scenarios to monitor:

• Break below and remain below 1.3839: That would indicate buyers are losing control of support and could prompt further selling. A brief dip below is less significant than a sustained break.
• Hold support at 1.3839: Buyers could step in again. Traders who sold after the rate decision may also repurchase their positions to take profits, potentially aiding a price bounce.

Sellers hold the near-term momentum, but the 200-day moving average is the next critical test. If support holds, watch for whether a rebound can reclaim 1.3858. If support breaks and the price stays below, sellers would solidify their control.

Additional comments from Macklem at 11:04 AM ET:

• Multiple rate increases could be necessary if the bank believes inflation is a problem.