The Canadian dollar was smashed on a completely unexpected decision by the Bank of Canada today to cut interest rates to 0.75% from 1.00%

USD/CAD shot to 1.2250 from 1.2070 immediately after the decision and has continued higher to a fresh five-year high to 1.2314.

USDCAD weekly chart after BOC Jan 21 2015

USDCAD weekly chart after BOC Jan 21 2015

Technically, there may be nothing stopping USD/CAD until 1.30, especially if oil prices continue make another leg down and Canadian oil producers begin to announce layoffs. Signs of trouble in the Canadian housing market would add another reason to sell.

In the immediate term, the focus shifts to a press conference from Bank of Canada Governor Poloz at 11:15 am ET (1615 GMT). He will be facing some tough questions but it’s abundantly clear from the statement that the drop in oil prices is the reason behind the move.

What traders will be looking for is a signal about whether this is a one-off move or if there could be more cuts to come. I suspect it will be cast as a one-off move because the BOC projection for a return to full capacity was only pushed out slightly. If that’s what Poloz hints, it could spark a bit of short-term selling in USD/CAD back down to 1.2250 but ultimately that will be a buying opportunity.

The speculative market isn’t overly short the Canadian dollar but they will be piling in now and technically, there is virtually no resistance until 1.30.