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USD/CAD traders getting set for the BoC as key highlight to the week

  • USD/CAD is positioned for a rebound, although traders are on the sidelines awaiting the BoC.
  • BoC to be the main focus for the week.

The grouping of candles between 1.3267 and 1.3314 could be a sign of bearish exhaustion and may equate to a bullish correction of the slide from 1.3650. However, there is a bearish bias over the greenback following Powell's rhetoric that gave the battered stocks and investors what they were looking for - A pause or even an end in the Fed's tightening cycle. Combined with optimism over a solution to the Sino/US trade dispute is stripping the greenback of its safe-haven and carry appeal which has to lead to a deterioration of the DXY to below the 96 handle and when throwing in the latest bullish case for oil, USD/CAD has moved down to a low of 1.3267. 

BoC expectations

WTI has climbed back to a more respectable level at the psychological $50bbls area which is better news for the Loonie, and Candian economy and timely as the BoC gathers tomorrow to decide upon their interest rates. However, the BoC is widely expected to leave the policy rate unchanged at 1.75%, and the CAD OIS implies almost no chance of either a hike or a cut. This week’s decision will be accompanied by a new Monetary Policy Report (MPR) which could provide some additional background to the central bank's outlook and detailed insight into the economic conditions that influenced the decision on where to set interest rates. However, a more hawkish outcome will undoubtedly give the Loonie an additional boost, as the market is not quite positioned for such a result, likely expecting downward revisions to 2019 growth, especially in light of the recent shift in Fed expectations. 

"Global growth concerns have also intensified in recent months, and financial markets have been volatile. Looking through near-term data-wiggles, though, the Canadian economy still looks to be operating close to capacity.  Businesses seem to be continuing to invest in balance and labour markets still look strong.  We expect that conditions will remain strong enough for the Bank of Canada to ultimately continue hiking interest rates at a gradual pace this year — although very likely not at tomorrow’s policy rate decision."

USD/CAD levels

"Gains may extend modestly above 1.3315 in the next 24 hours or so, but we think there is firm resistance on USD gains to the 1.3385 (40-day MA)/1.34 area now. Recall that the broader patterns of trade are clearly USD negative following the formation of a bearish key week reversal last week. We look for further, corrective USD weakness towards the 50% Fibonacci retracement support at 1.3224 in the next few weeks. Look to fade USD rallies," analysts at Scotiabank explained. 

 

 

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