USD/CAD retreats after hitting 20-month highs near 1.3220

• USD/CAD posts biggest daily gain in months.
•  Loonie is under pressure despite a larger-than-expected BoC rate hike.
• US dollar firm across the board amid risk aversion.

The USD/CAD made an impressive reversal during the latest sessions, rising from weekly lows to the highest since November 2020. Recently it climbed to 1.3223 before pulling back toward 1.3150.

CAD weakens the day after BoC's surprise

On Wednesday, the Bank of Canada rose the key interest rate by 100 basis points to 2.50%, a larger-than-expected move. The loonie rose across the board after the decision. It started to decline during Thursday’s Asian session and accelerated the move higher in European hours.

After breaking above the key resistance at 1.3080 it jumped above 1.3100 and then peaked at 1.3223. As of writing, it trades at 1.3140, up almost 200 pips for the day.

A stronger US dollar across the board, a decline in crude oil prices and risk aversion boosted USD/CAD. The greenback, measured by the DXY, reached the highest level in almost 20 years at 109.29 before trimming losses.

Data from the US showed the Produce Price Index rose 1.1% in June above the 0.8% of market consensus. Inflation concerns remain the top priority for central bankers.

Technical levels