USD/CAD turns flat on the day below 1.32 as BoC leaves policy rate unchanged

• BoC holds policy rate steady at 1.5% in September meeting.
• US Dollar Index looks to end the day with modest losses.
• Trade deficit in Canada continues to shrink.

With the initial reaction to the BoC's interest rate decision and the monetary policy statement, the USD/CAD pair tested the 1.32 handle but failed to break above that level. As of writing, the pair was virtually unchanged at 1.3190.

As expected, the Bank of Canada announced that decided to keep its policy rate unchanged at 1.5%. The policy statement highlighted that the bank saw elevated trade tensions as a key risk to the global outlook and it was following NAFTA developments closely due to their potential impact on the inflation outlook. Earlier in the day, the data released by Statistics Canada revealed that the trade deficit in July fell to $114 million from $743 million in June. On the other hand, the trade deficit of the U.S. increased to $50.1 billion in July from $45.7 billion in the previous month.

"The language sets up the Bank for a hike at the next meeting but we think that the market has priced in much of this already; USDCAD should continue to trade in the 1.30 to 1.35 range, suggesting to establish fresh longs towards the lower end of the range," TD Securities analysts said assessing today's policy statement.

In the meantime, St. Louis Fed President James Bullard repeated that the inflation and the flattening yield curve indicated that the monetary policy was neutral and the Fed could hold off on further rate hikes. Later in the US afternoon, regional Fed presidents Bostic, Williams, and Kashkai will also be delivering speeches. The US Dollar Index, which tracks the greenback against a basket of six major currencies, was last down 0.25% on the day at 95.18.

Technical levels to consider

The pair could encounter the first technical support at 1.3155 (daily low) ahead of 1.3080 (50-DMA) and 1.3000 (psychological level). On the upside, resistances are located at 1.3200/05 (psychological level/daily high/Sep. 4 high), 1.3290 (Jul. 19 high) and 1.3385 (Jun. 27 high).