USD/CAD jumps to two-month highs near 1.3450 on BoC's cautious tone

• The BoC leaves policy rate unchanged at 1.75% as expected.
• The bank recognizes the recent economic weakness in its statement.
• The US Dollar Index consolidates below 97.

With the initial market reaction to the Bank of Canada's monetary policy statement, the USD/CAD pair added more than 50 pips in a matter of minutes and touched its highest level since early January at 1.3440. As of writing, the pair was trading at 1.3425, gaining 0.6%, or 80 pips, on a daily basis.

As expected, the BoC decided to keep its policy rate unchanged at 1.75% in March. In its policy statement, the bank acknowledged that the slowdown in the fourth quarter was sharper and more broadly based than initially anticipated and hinted that the bank will reassess its view on further rate hikes to put the loonie under heavy selling pressure. Moreover, today's data from Canada revealed that the trade deficit rose to a record high of $4.6 billion.

"Given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook," the BoC said. "With increased uncertainty about the timing of future rate increases, Governing Council will be watching closely developments in household spending, oil markets, and global trade policy."

On the other hand, the US Dollar Index struggled to extend its rally following today's data releases but did little to nothing to stop the pair's upsurge. The ADP today reported that private sector employment increased by 183K in February compared to the market expectation of 189K and the trade deficit widened to $59.8 billion in December from $50.3 billion in November. At the moment, the DXY is down 0.05% on the day at 96.85.

Technical levels to consider

The initial resistance for the pair aligns at 1.3440 (daily high) ahead of 1.3490/1.3500 (Jan. 4 high/psychological level) and 1.3530 (Dec. 20, 2018, high). On the downside, supports are located at 1.3355 (daily low), 1.3310 (Mar. 5 low) and 1.3240 (50-DMA).