Loonie Dips to 3-wk Low on Rate Cut

The Bank of Canada announced the results of its monetary policy deliberations this morning, unexpectedly cutting its benchmark lending rate by 25-basis points to 0.25%, a record low. The BoC acknowledged that the recession in Canada will be deeper than anticipated, with the economy projected to contract by 3.0% in 2009. The Bank noted that the overall risks to its inflation projection are tilted slightly to the downside and conditional on the outlook for inflation; the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.

USDCAD edged up to its highest level since the beginning of April, briefly jumping past the 1.25-level. The pair has since eased off its highs to hover near the 1.2370-region. Resistance is seen at 1.24, followed by 1.2430 and 1.2470. Subsequent ceilings will emerge at 1.25, backed by 1.2540 and 1.2580.

Euro Recovers from One-Month Lows

The euro rebounded from its lows versus the dollar, clawing back above the 1.29-level to hover just beneath the 1.30-mark. The single currency benefited from a better than expected report on Germany's ZEW sentiment survey, which climbed into positive territory for the first time in nearly 2-years. The April economic sentiment survey surged to 13.0, far exceeding expectations for an improvement to 1.5 and up 16.5-points from -3.5 in March. The current conditions component, however, deteriorated further to -91.6 from -89.4 a month earlier. The President of the ZEW, Dr Franz commented that, the ZEW sentiment indicator reveals that there are well-founded expectations that the downward dynamics of the business cycle are bottoming out. Franz expressed optimism that the Eurozone's largest economy will slowly recover in the second half of this year.

EURUSD trades near the 1.2965-level with resistance starting at 1.30, followed by 1.3050 and 1.31. Additional gains will target 1.3130, followed by 1.3160 and 1.32. Support begins at 1.2920, backed by 1.29 and 1.2865. Subsequent floors are seen emerging at 1.2840, followed by 1.28 and 1.2750.