The USD/CAD and GBP/CAD exchange rates held steady on Wednesday as traders waited for the upcoming Bank of Canada (BoC) interest rate decision. The GBP/CAD pair was trading at 1.7110, 2% above its lowest point this year. Similarly, the USDCAD price has risen by 2.2% to 1.3476.

The BoC will conclude its first monetary policy meeting of the year on Wednesday. This meeting is expected to set the tone about the next actions by the bank. Most economists expect it to leave rates at 5.0%, as it has done in the past four meetings. Like other central banks, the Bank of Canada has hiked interest rates from the pandemic-low of 0.25%.

The BoC decision comes at a time when Canada has published weak economic numbers. On Friday, data by the statistics agency said that retail sales dropped by 0.2% while core sales fell by 0.5% in November. These declines were worse than the expected 0.0% and -0.20%. Retail sales are important in Canada because of the role that consumer spending plays in the economy.

The other important report showed that Canada’s inflation rose slightly in December. The headline Consumer Price Index (CPI) rose from 3.1% in November to 3.4% in December, in line with expectations. Core inflation rose by 3.9%, beating analysts estimates of 3.8%.

A separate report published earlier this month showed that the labor market was weakening. The economy lost 23.5k jobs in December as the labor participation rate dropped slightly to 65.4%. Finally, Canada’s manufacturing PMI remained below 50.

Therefore, these numbers mean that the Bank of Canada will likely leave interest rates unchanged and point to a rate cut later this year. The challenge is that pointing to a rate cut could lead to higher inflation, especially now that shipping costs have surged.

USD/CAD chart by TradingView

The USD/CAD exchange rate has been in an upward trend in the past few weeks. It has risen from the year-to-date low of 1.3177 as the US dollar index has jumped. The pair formed an ascending channel and move to the 38.2% Fibonacci Retracement level. It has also jumped above the 50-period moving average while the two lines of the MACD are at the neutral point. 

Therefore, the outlook for the pair is bullish, with the next important point to watch being at 1.3540, the highest point this year. This price coincides with the 50% Fibonacci Retracement level. However, a drop below the support at 1.3420 will invalidate the bullish view.

The GBP to CAD exchange rate has formed an ascending channel in the past few weeks and is now at its lower side. Like the USD/CAD pair, it has risen above the 50-period moving average and the ichimoku cloud. 

Also, the pair’s MACD has remained at the neutral point while the Relative Strength Index (RSI) is tilting upwards. However, unlike the USD/CAD pair, this one has formed a double-top pattern, which is one of the most bearish signs. Therefore, the pair will likely have a bearish breakout in the coming days. If this happens, it will likely drop to the psychologically-important point at 1.700.

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