This pair has been in a strong rally the past 2 and a half years, reaching its previous peak at 1.2833. This has been mainly due to the strong GDP growth in the US, average over 2% during the last 3 years, compared to sluggish growth in Canada at under 1% throughout the same period.
Last January BoC surprisingly cut interest rates from 1% to 0.75% which sent the market soaring from around 1.2050 to over 1.27 by month’s end. Tomorrow there is a scheduled BoC rate announcement, until more recently most analysts were expecting another cut, but recent data may have dampened those hopes, 10 year Bond yields have risen from 1.52% to 1.72% over the past 2 days indicating traders may not be so hot on a cut right now. Looking at the day chart it is clear that this pair is well overbought, a postponement of a rate cut tomorrow may well see this pair retrace to much lower levels.