USD CAD reaches new six year high on BOC rate cut Yellen comments

USD/CAD (daily chart shown below) shot up to a new six-year high above 1.29 on Wednesday after the Bank of Canada (BOC) slashed its benchmark interest rate for the second time this year. The rate was lowered to 0.5%. This resulted in a plunge for the Canadian dollar, which had already been weakened by falling oil prices.

Additionally, US Federal Reserve Chair Janet Yellen reiterated on Wednesday the Fed’s intention to raise interest rates this year, provided the US economy evolves as expected. This comment helped pushed the US dollar higher after the greenback had already been lifted earlier in the day by a better-than-expected Producer Price Index (PPI) that saw a 0.4% increase versus expectations of 0.2%.

This combination of factors propping up the US dollar and pressuring the Canadian dollar resulted in the USD/CAD currency pair rising dramatically above its previous multi-year highs around the key 1.2800 resistance level.

For the past month, USD/CAD has been rising sharply from its last downswing in mid-June that turned back to the upside just above its 200-day moving average and a key uptrend line that has been in place for the past year. That turn was accented by a clear bullish hammer candle. Since then, the currency pair has climbed virtually unremittingly on a strengthening US dollar and dropping oil prices.

While a pullback after Wednesday’s over-extension should soon be due, the immediate upside target within the context of USD/CAD’s strong bullish run remains at the 1.3000 psychological resistance level, last reached in March of 2009.