Bank of Canada is Up Next

Earlier today, the Reserve Bank of Australia (RBA) cut interest rates by 25 basis points as expected, to a record low of 0.50%. "The Board is prepared to further ease monetary policy to support the Australian economy," the RBA said in a subsequent statement.

The Fed was not willing to fall behind, thus bringing a surprising inter-market rate cut to the US market by 50 basis points to 1.25%. After the unsatisfactory G7 statement, Powell and the gang felt that asset prices had fallen too fast and too much. In a subsequent press conference, Fed Powell said "fundamentals remain strong." The Fed believes they need to do their part due to the coronavirus and the control measures it has taken. However, the stock market index seems to feel that this is too little (or too early?), and is down about 2% at the close of the trading day.

In North America tomorrow morning, the Bank of Canada (BOC) will meet to decide whether to cut interest rates. At the last meeting on January 22, members decided to keep interest rates unchanged at 1.75%, but switched from a neutral position to a dovish position. They pointed out that they would "closely monitor the economy to see if the recent slowdown in economic growth is more persistent than forecast." Canada ’s manufacturing PMI of February was 51.8 in February and was expected to be 50.2. Manufacturing performed well in February as many countries were below contraction / expansion levels of 50. However, the rate cut tomorrow will not cause in any slowdown in the latest domestic data as the data has remained good. Like the Fed, cutting interest rates will try to stay ahead of the global economic slowdown caused by the coronavirus.

During the last BOC meeting, USD / CAD rose from 1.3050 to 1.3150. However, the Canadian dollar has been depreciating as world growth has slowed. Prices rose from a high of November 20, 2019 to a low of 1.3425 / 50 on December 31, rising to a 127.2% Fibonacci extension level. Yesterday the currency pair retreated to the horizontal support at 1.3330. However, although "overall expectations" have not changed, many traders believe that the Fed has cut interest rates (as the Fed did today), thus bringing prices back up. Horizontal resistance is 1.3425 and Friday's high is 1.3465. Above this level is the 161.8% Fibonacci extension in the vicinity of 1.3560. Below 1.3330, there are horizontal and trend line support near 1.3275, and there are many horizontal lines near 1.3200, 1.3150 and 1.3100.

Worrying about the global impact of the coronavirus, we have recently seen pre-emptive rate cuts. Tomorrow, the Bank of Canada will need to decide if any preemptive measures are needed.