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Today’s Notable Sentiment ShiftsCAD/BoC – The Bank of Canada opened the door to a more aggressive pace of tightening at their June meeting, stating it was prepared to act “more forcefully” if needed to tame inflation, even as it went ahead with a historic second consecutive 50-basis-point rate hike, taking the Overnight Rate to 1.5%. The BoC reasoned that “the risk of elevated inflation becoming entrenched has risen. The Bank will use its monetary policy tools to return inflation to target and keep inflation expectations well-anchored.” They added that rates could go above the 2%-3% neutral range for a period, if needed.
by thunderpips
1
Bank of Canada hints at half-point hikeThe Canadian dollar has been on a nasty slide, falling around 2% since Thursday. There are no Canadian releases until GDP on Friday, which means that US releases during the week will have a significant impact on the movement of USD/CAD. Bank of Canada Governor Tiff Macklem can usually be counted on for using clear and understandable language, which I'm always grateful for, as I vividly recall trying to decipher Alan Greenspan's Fedspeak years ago. Unlike Greenspan, Macklem wants the markets to actually understand what he's saying. The BoC delivered a 0.50% hike earlier this month, the largest increase in over 20 years. Macklem remains in hawkish mode and said on Monday that additional 0.50% increases were being considered. The markets expect the BoC to tighten at a fast pace - a 0.50% has been priced in for the June meeting, with a slight possibility of a massive 0.75% hike. The primary driver for the BoC's aggressive stance is, of, course, the surge in inflation. The BoC is committed to wrestling inflation down from its highest level in 30 years, with the challenge of raising rates enough to curb inflation without bringing the economy to a screeching halt. The BoC is also keeping an eye on what's happening down south with the Federal Reserve. With the US also grappling with soaring inflation, the Fed may deliver 0.50% hikes as well, and this will likely propel the US dollar higher. The BoC doesn't want to see the Canadian dollar get pummelled and with rates set to go as high as 3% by year's end, the BoC should be able to keep in sync with the Fed, which will help the Canadian currency keep pace with the US dollar. With the BoC aggressively raising rates and oil prices around the 100-dollar mark, the outlook for the Canadian dollar is positive. USD/CAD has support at 1.2632 and 1.2537 There is resistance at 1.2804 and 1.2899
by OANDA
Canadian dollar jumps as CPI surgesThe Canadian dollar is up sharply on Wednesday, as Canada's inflation report was hotter than expected. In the North American session, USD/CAD is trading at 1.2519, down 0.74% on the day. Canada's CPI for March jumped 6.7% YoY, a full percentage point higher than the 5.7% gain in February. On a monthly basis, inflation rose 1.4%, up from 1.0% prior. Both the annual and monthly figures were the highest since January 1991. Inflationary pressures are not just increasing, but are widespread across economic sectors. Fuel, food, durable goods, restaurants, air travel - you name it and prices have moved in one direction - up. The upswing in inflation is a worrying trend for the BoC, and given the tight labor market and solid growth in the economy, we could be treated to a second straight 0.50% rate increase at the June meeting. At last week's meeting, the central bank raised rates from 0.50% to 1.00%. The Canadian dollar moved higher, as investors liked the oversize rate hike as well as the BoC's announcement that it would scale back its balance sheet. The BoC appears to be in sync with the Federal Reserve, as the BoC's rate-tightening cycle could see rates rise as high as 3% but the end of the year. This should help the Canadian dollar keep pace with a Fed-powered US dollar, at least with regard to monetary policy. We saw 0.50% rate hikes from the BoC and RBNZ last week and the Fed is likely to follow suit at its May meeting, given that US inflation is galloping along at a 40-year high.  FOMC member Bullard is even suggesting that a massive 0.75% hike is a possibility. This stance is not Fed policy, but with talk of a 0.75% increase, a 0.50% move is looking less dramatic, and might not shake up the markets, which have been fed a steady diet of hawkish statements from Fed members over the past few weeks. USD/CAD has broken below resistance at 1.2533. Below, there is support at 1.2451 There is resistance at 1.2605 and 1.2687
by OANDA
Canadian dollar flat, CPI nextIt has been a quiet week for the Canadian dollar, despite the crisis between Ukraine and Russia, which has captivated the world's attention. The lack of movement could change on Wednesday, as Canada releases the inflation report for February. Canada's CPI looked weak in December, with a reading of -0.1% m/m. However, inflation is expected to have jumped in January, with a consensus of a strong gain of 0.6%. A reading within expectations would indicate that high inflation remains alive and well and will put pressure on the Bank of Canada to take aggressive action in order to curb inflation. BoC Governor Tiff Macklem has said that more rate hikes are coming in order to lower inflation to the central bank's 2% target, but other than that hasn't provided any guidance. Macklem has maintained that inflation is transitory and will ease in the second half of the year but he may have to adjust his stance, as we saw with Fed Chair Powell, if inflation continues to accelerate. The crisis on the Ukraine/Russia border remains a powder keg that could explode at any time. Somewhat surprisingly, this major geopolitical development has not affected the Canadian dollar, which is a minor currency that is sensitive to risk sentiment. That could change if there are dramatic moves in the next few days, such as a Russian invasion, which could see the currency tumble, or a Russian troop withdrawal from the border, which would be bullish for the Canadian dollar. There are still hopes that a diplomatic solution can be reached and there have been reports of some Russian troops withdrawing from the border. The solution to the crisis is firmly in the hands of Russian President Vladimir Putin. The West has no intention of supporting Ukraine militarily, so the key question is whether the threat of sanctions is enough to dissuade Putin from starting a war in central Europe. USD/CAD faces resistance at 1.2818 and 1.2873  1.2679 is being tested in support for a second straight day. Below, there is support at 1.2595
by OANDA
Canadian dollar edges higherThe Canadian dollar has posted slight gains on Wednesday. There are no Canadian tier-1 events on the calendar this week, so we can expect US releases will have a magnified impact on the movement of the Canadian dollar this week. With the Fed poised to launch a series of rate hikes starting in March and inflation surging in Canada, it's unlikely that the Bank of Canada will simply fold its hands. BoC Governor Tiff Macklem said as much when speaking to a Senate committee in Ottawa last week. Macklem said that additional interest rates are needed to lower inflation to the 2% target, with the number of hikes depending on economic developments. And after that? There hasn't been much guidance from the BoC, leaving the markets in the dark. Although Macklem was clear that additional rate hikes are on the way, his comments indicated that he still views inflation as transitory, saying that he expects inflation to ease in the second half of 2022. Macklem is speaking to the Canadian Chamber of Commerce today and any hints about rate moves could wake up the sleepy Canadian dollar. In the US, the markets have priced in at least five rate hikes this year, but the Fed is still more dovish. Earlier in the day, Fed member Bostic said that he saw inflation easing shortly and said he expects 3-4 rate hikes this year. Bostic's remarks boosted risk appetite, as concerns that the Fed will tighten aggressively have eased. US inflation continues to rise and the markets are bracing for an acceleration in January CPI. The consensus stands at 7.3%, which would be up from 7.0% in December. If inflation is within expectations or higher, the likelihood of a 50-basis point hike in March will increase. According to CME's FedWatch, the markets have priced in a 75% chance of a 25-bps rise and a 25% chance of a 50-bps hike at the March meeting. USD/CAD faces resistance at 1.2818 and 1.2873 1.2679 is being tested in support for a second straight day. Below, there is support at 1.2595
by OANDA
Cdn. dollar rebounds after soft job dataThe Canadian dollar has started the week with strong gains, recovering after sharp losses at the end of the week. There are no Canadian tier-1 events on the calendar, so US numbers will have a magnified impact on the movement of the Canadian dollar. The US nonfarm payrolls outperformed in spectacular style, posting a gain of 467 thousand jobs in January. Many analysts had projected a negative print, and the consensus of 125 thousand showed that expectations were quite low. With inflation at 40-year highs, wage pressures are rising. Average hourly earnings climbed 5.7% in January y/y, as workers seek higher wages due to the rise in the cost of living. The strong NFP report will keep the pressure on the Fed not to ease up on the rate pedal after the (widely expected) March liftoff. It was a starkly different story north of the border, as the Canadian employment report for January was dismal. The economy shed 200.1 thousand jobs, after a gain of 78.6 thousand in November. The consensus stood at -117.5 thousand. The unemployment rate jumped from 6.0% to 6.5%, higher than the estimate of 6.2%. The weak Canadian jobs reports, coupled with a massive NFP which has raised expectations of more rate hikes, was a double-whammy that sent the Canadian dollar sharply lower on Friday. BoC Governor Tiff Macklem testified before a Senate banking committee in Ottawa last week, and his comments indicated that Macklem still views inflation as transitory, as he stated that the BoC expects inflation to ease in the second half of 2022. At the same time, Macklem was clear that additional interest rates are needed to lower inflation to the 2% target, with the number of hikes depending on economic developments. The BoC is widely expected to raise rates at its next meeting in early March, but similar to the Fed, there's lots of uncertainty about what happens after that. Macklem will speak on Wednesday and the markets will be looking for clues regarding future rate hikes. USD/CAD faces resistance at 1.2818 and 1.2873  1.2679 was tested in support earlier in the day. Below, there is support at 1.2595
by OANDA
CADJPY Long IdeaCADJPY has been trading in a downtrend for some time now, however the price has been respecting the key zone of 90.15/90.30. There has been multiple occasions in which the price has fallen to this area and reacted well. Since breaking below this key level on the 24th of January, CADJPY has been setting higher lows and the price has been conforming to an upwards trend line. This morning there was some sell off towards this key area which why our short-term bias is now long considering previous price action. The RSI indicators on the 15m/30m area at oversold conditions which adds to our long bias.
Long
by Orion-Markets
GBP/CAD - Jumps as BoC resists raising ratesThe pound has been range-bound against the Canadian dollar for the last week and that remains the case so far today, despite the Bank of Canada holding off on raising interest rates. It had been expected to start the tightening cycle today, with the market's pricing in up to five more over the course of the year after inflation hit a 30-year high and the labour market improved. But with the central bank taking a more patient approach and instead laying the foundations to raise rates in March, once it has a better idea of the Fed's plans, no doubt, the currency has come under some pressure. And expectations for that sixth hike in 2022 have dipped, with it now deemed a coin toss in December. Still a very aggressive start to monetary tightening, of course. As far as the chart is concerned, this still leaves the pair range-bound for now, with the upper end holding firm after the decision. It will now be interesting to see which end fails first, with the BoE also in the business of raising rates, after getting underway in December, with another widely expected next week. A move higher could see the pair quickly run into some resistance around 1.71, where prior support and resistance coincides with the upper end of the SMA bands on the 4-hour chart. A move below the 50 fib, and the range support, could be quite bearish, with support perhaps being seen around 1.6850 and 1.6725-1.6735.
by OANDA
Head and Shoulders Retest - Adding to ShortsHeading into BOC rate decision tomorrow with some analysts forecasting an earlier than expected rate hike, we see USD/CAD rally up into the neckline of that head and shoulders pattern it broke through last week. Partial profits were taken on Thursday last week and now I will be adding back on to this short position. Looking deeper at the rate decision... it has been said for roughly the past year that the BOC would raise rates before The Fed, now that time is near. With The Fed forecasted to be raising rates in March and possibly even raising by 50 basis points, the BOC is being said to likely jump ahead and start with a quarter percent hike this week. A quarter percent hike will shock markets, but not as much as what would happen if The Fed hiked by half a percent. The BOC historically has been more stable and acting ahead of the game in terms of raising rates and being more subtle than The Fed has been.
Short
by TheCaffeinatedTrader
3
Canadian dollar calm ahead of retail salesThe Canadian dollar continues to tread in choppy waters, as it trades slightly above the symbolic 1.25 line. The week will wrap up with Canada releasing retail sales, the primary gauge of consumer spending. For November, the headline reading is expected to slow to 1.2% y/y (1.6% prior) and core retail sales are forecast to remain unchanged at 1.2%. Canadian provinces have renewed tough health restrictions in a bid to curb the spread of Omicron, which is dampening restaurant and entertainment activity. GDP growth will be affected by the restrictions, and expectations are that Canada will show marginal or no growth in the first quarter. The good news (hopefully) is that pent-up demand will translate into strong growth once the Omicron wave subsides. Despite the toll that Omicron has inflicted on the Canadian economy, the markets are expecting the Bank of Canada to act at next week's policy meeting. A quarter-point hike has been priced in at around 70%, even though at its meeting, the BoC is expected to revise lower its growth forecast for Q1. Financial headlines announcing that inflation has surged to 30-year highs are becoming more common. First, it was US inflation, followed by the UK just this week, and now Canada has joined the club. In December, headline CPI rose to 4.8% y/y, the highest level since a 5.5% print back in September 1991. The jump in inflation has raised expectations that the BoC will press the rate trigger at next week's meeting. Inflation has now overshot the bank's inflation target of 1% to 3% for nine straight months.  Higher oil prices are also contributing to inflation, but we could see some relief as oil futures indicate that oil prices will ease in the first half of this year. There is support at 1.2434, which has held since mid-November. Below, there is support at 1.2322  There is resistance at 1.2678 and 1.2810
by OANDA
Canadian dollar buoyed by risk sentimentThe Omicron variant continues to rage through Europe and the US, but the markets are in a positive mood. Why? There is a feeling that Omicron is much milder than Delta, which means that a wave of Omicron may get a lot of people sick, but it will not kill thousands and overload hospitals with severely ill patients. Time will tell if this is an accurate diagnosis. In the meantime, the global recovery outlook has improved and commodity prices are higher, which is good news for the Canadian dollar. Risk sentiment has been moving up and down over the past few weeks, depending on the headlines de jour concerning Omicron. Investors have been encouraged by the latest medical reports out of the UK and elsewhere which indicate that Omicron is up to 70% less severe than Delta. The equity markets continue to rise and risk barometers such as the Canadian dollar have moved higher this week. The markets are starting to view Omicron like a storm in a tea cup, but there is good reason not to sigh in relief just yet. First, Omicron is five times more contagious than Delta, which means that unvaccinated people could experience severe symptoms. Second, some reports indicate that Omicron is not necessarily less severe than Delta. Third, the Chinese Sinovac vaccine, which is the only one available for a majority of the world (the developing countries), doesn't appear to be effective against Omicron. In the meantime, the markets have dismissed Omicron as an annoying nuisance, and this rosy outlook could continue into January, barring some grim statistics from a wave of Omicron. Canada's GDP for October rebounded with a gain of 0.8% y/y, up nicely from 0.1% beforehand. The economy has now expanded for five straight months and the BoC is projecting growth in Q4 at 4.0% y/y, as the economy continues to gather steam, despite the challenges of Covid. USD/CAD has support at 1.2756. Below, there is support at 1.2615 There is resistance at 1.2987. Above, there is resistance at 1.3077
by OANDA
Will GDP lift the loonie?The Canadian dollar is trading quietly ahead of the release of Canada's GDP for October later today. The loonie took advantage of broad US weakness on Wednesday, posting gains of 0.53%, its best daily showing since December 7th. Canada's economy was stagnant in September, with a paltry gain of 0.1%. October, however, is expected to show a strong rebound. Statistics Canada is projecting a gain of 0.8% m/m, but some solid data since this projection has added upside risk, which could translate into a gain of 1.0%. I would expect a GDP reading of 0.8% or higher to provide a boost for the Canadian dollar. A strong GDP report could also have an impact on the Bank of Canada, which has signalled that it plans to embark on a series of hikes in 2022 (a much faster pace than the Fed). A rate hike is widely expected in Q1 2022, but the date of lift-off remains uncertain and will likely be determined by the strength of economic indicators. April is the most likely date at the present time, but an acceleration in the October GDP and higher inflation could push that date forward, perhaps as early as January. There is a lot of uncertainty surrounding the Omicron variant, and the screaming headlines continue to impact risk appetite as well as risk barometers such as the Canadian dollar. The currency slid 1.3% last week, as Omicron raged across Europe and the US, raising fears of new health restrictions and possible lockdowns. Risk sentiment has rebounded sharply this week, as more reports show that although Omicron is much more contagious than Delta, the symptoms have been less severe. The positive news has sent the Canadian dollar higher this week. The roller-coaster in the currency markets could well continue for the rest of December, as the markets are being driven by headline volatility rather than market trends. Therefore, caution in these turbulent, illiquid markets is strongly recommended. USD/CAD has support at 1.2756. Below, there is support at 1.2615 There is resistance at 1.2987. Above, there is resistance at 1.3077
by OANDA
Swing trading opportunity! + Fundamental DriversHello traders! TD Securities have opened a new buy trade on usdcad entry: 1.2413 stop: 1.2200 target: 1.2750 Rationale: We add a long usdcad position to our fx model portfolio and target a move to 1.2750. A lot of good news appears in the cad price. Since September fed meeting, the cad has registered one of the largest builds on our positioning tracker. This has helped to drive a discount on our cross asset fv measure (aprox. 1.25) and an even larger discount on our implied level derived from just global growth expectations and risk sentiment (1.27). Technicals also suggest sufficient signs of bottom in the pair (such as macd). Ourrates team also believes the global frontend repricing has matured. Looking an OIS curve, we think risk/reward is unappealing to price in more tightening at the April 2022 meeting (which is already rather heroic assumption in our view) of for 3 hikes by July next year. While CAD's oil beta has appreciably tightened in the recent weeks, the terms of trade boost may be well advanced as our commodity team expects WTI. oil to average $86 this quarter. We also expect a firmer USD in the weeks ahead, driven by outperformance against the low yielders and sticky fed pricing as well as seasonal boost that tends to occur in November. Fundamental Drivers: United States Dollar (USD) Fundamental Bias: Weak Bullish Primary driver: 1. The monetary policy outlook for the fed Rationale: More hawkish than expected sums up the sep meeting. The FOMC gave the go ahead for the November tapering announcement as long as the economy develops as expected with their criteria fo substantial further progress close to being met. The biggest hawkish tilt was the announcement about a faster pace of tapering, with Chair Powell saying there is broad agreement that tapering can be concluded by mid 2022. Inflation projections were hawkish, with the fed projecting core pace above their 2% until 2024. On labour, Chair Powell said he thought the substantial further progress threshold for employment was all but met and explained that it won't take a very strong September jobs much steeper than markets were anticipating with seven hikes expected over the forecast horizon from just two previously. It is important here to note though that even though the path was steeper, if one compares that to a projected Core pce>2% for 2022to 2024, the rate path does not exactly scream fear when it comes to inflation. ALLin all, it was a hawkish meeting. The upcoming NOV3rd meeting is expected to see the bank formally announce tapering at a a pace of 15billion per month starting in dec. With that largely expected, focus will fall on rate expectation where eurodollar futures implythree rate hikes between jun and dec 2022, which seems too aggressive right now son any push back or confirmation of that pricing arguably be a bigger driver for the usd and us rates this week compared to the expected tapering. Primary driver: 2. Real yields Rationale: With q4 taper start and mir 2022 taper conclusion on the card, we think further downside in real yields will be a struggle and probability are skewed higher given the outlook for growth, inflation and policy, and higher real yield should be supportive for the usd in the med term. primary driver: 3. The global risk outlook Rationale: One supporting factor for the usd from June was the onset of downside suprises in global growth. However, there has been a growing chorus of the market participants looking for a possible bounce in growth stat q4 after the covid and supply chain related slowdown in q3.If we do indeed see a pickup in growth, while inflation is still elevated, that would mean a reflationary environment, which is usually a negative input for the dollar, so we want to keep that in mind when assessing the incoming us economic data in the next few weeks. primary driver: 4. economic data rationale: Very busy week for economic data with nfp on Friday and the usual slew of economic data that feeds into nfp being releases throughout the week ism report, adp. However, with the FOMC coming up on Wednesday, the data feeding into nfp will most likely take a back seat until we hear from the fed and depending on the type of tone that will largely impact how markets react to Fridays nfp release. Primary driver: 5. CFTC analysis Rationale: Latest CFTC data showed a positioning change of - 1477 with a net non commercial position +34457. Positioning isn't anywhere near stress levels for the usd, but the speed of the build up in large speculator positioning has been sizeable 1 year look back period. Thus even though the med term bias remained unchanged it does mean usd could be sensitive to mean reversion risks while still trading close to ltd highs. This weeks FOMC will take centre stage though. Canadian Dollar CAD Fundamental Bias: Bullish Primary driver: 1.The monetary policy outlook for The BoC Rationale: At their oct meeting the bank suprised the markets by decided to put an early qe purchases and also updated their forward guidance to suggest and earlier liftoff in rates by explaining that they now see economic slack being absorbed by die middle quarters of 2022. The initial reactions very bullish as one would expect an saw the cad appreciate across the board.We think the biggest risk to further upside for the cad from here is the fact that a lot of these positives confirmed by The BoC has already been reflected in both the cad and rates markets over the past few weeks. The Cad has seen a similar run to the upside back in 2021 q1 with the boc's hawkish tilt, and similarly to that we feel current prices for rates and cad already reflect a great deal of positives. Thus even though the med term outlook remains tilted to the upside for the cad there is a risk of seeing some unwind of the recent upside and is something to be mindful of when making any med term allocations to the upside in the cad. Primary driver: 2. Commodity linked currency with dependency on oil exports Rationale Oil staged a massive recovery after hitting rock bottom in 2020 and the move higher over the recent months has been driven by supply and demand opec production cuts, improving global economic outlook an improving oil demand outlook, even though slightly pushed back by delta concerns, rising inflation expectations. Even though further gains for oil Will arguably prove to be an uphill battle, the bias remains which could affect the cad from an inter market point of view, but as long as the med term view for oil remains higher it should be supportive for metro currencies like the cad. The recent energy crisis affecting large parts of the globe's placed upside pressure in oil, gas and coal and has support for the cad. A possible risk for oil prices and by connection the cad is any attempts by the us or opec+ to calm down prices. On the us side they could opt to release more of their reserves and on specs side they could announce additional increases production output. This week we have another opec+ meeting so keeping that on the radar for the cad will be important in the week ahead. Primary driver 3. Developments surrounding the global risk outlook rationale: As a high beta currency, the cad benefited from the markets improving risk outlook coming out of the pandemic as participants moved out of safe havens. As a pro cyclical currency the cad enjoyed upside alongside other cyclical assets supported by reflationand post recession recovery bets. If expectations for the global economy remains supportive the overall positive outlook for risk sentiment should be supportive for the cad in the med term, but recent short term jitters ar timely reminder that risk sentiment is also a very important short term driver. primary driver: 4. CFTC analysis Rationale Latest CFTC data showed a positioning change of +14244 with a net non-commercial position of +3320. With a lot of positives in the price for the cad and the from and yields, it is however encouraging to see that positioning isn't stretched for either large specs or leveraged funds, and suggest that further upside could of course be possible if short term sentiment for oil and risk assets remain favourable. Thank you for reading! Have a great week! :) Vitez
Long
by Vitezabraham