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Bank of Canada: Rate Cut Expected; Forward Guidance EyedThe Bank of Canada (BoC) will take centre stage tomorrow at 1:45 pm GMT. Alongside the rate decision, the central bank will deliver the rate statement and the Monetary Policy Report, released quarterly and providing investors with a glimpse of what the central bank expects in Q3. This offers investors invaluable insight into the central bank’s thinking on future inflation and growth. Shortly after this, BoC Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers will hold a press conference consisting of prepared opening remarks and a Q&A session with the press. As a reminder, the June policy meeting cut the Overnight Rate by 25 basis points to 4.75%, the central bank’s first rate cut in four years. The previous meeting also made it reasonably clear that additional cuts are on the table this year should inflationary pressures continue to soften. Cooler Inflation and Jobs Data Tomorrow’s update follows cooler data, specifically inflation and jobs. The headline year-on-year Consumer Price Index (CPI) revealed inflationary pressures slowed more than anticipated in June, cooling to +2.7% from May’s reading of +2.9% (consensus: +2.8). The latest data has left inflation circling the upper boundary of the BoC’s 1%-3% target range, which has been the case since the beginning of this year, fluctuating between +2.9% and +2.7%. The average of the BoC’s two core measures also marginally slowed in June to +2.75%. On the jobs front, June unemployment rose to its highest level since the beginning of 2022 at 6.4%, and employment change declined by -1,400. Canada’s economic activity has also remained insignificant this year. The latest data from Statistics Canada showed that real Gross Domestic Product (GDP) increased by +0.3% in April, unchanged from March. In terms of Q1 data, real GDP expanded by +0.4%; this follows a flat reading for Q4 2023. The latest Q2 Business Outlook Survey found that firms' sentiment remained unchanged compared to the previous quarter. Firms relying on discretionary sales noted weaker activity, though given the rise in population in Canada – the country’s population recently increased its most since 1957 – firms tied to more essential, non-discretionary items have seen an increase in sales. The report also communicated that businesses anticipate slowing inflation this year and added: ‘The share of firms reporting labour shortages is near survey lows’. Market Expectations According to swaps traders, the BoC is expected to reduce the Overnight Rate by 25 basis points for a second consecutive meeting tomorrow, bringing it down to 4.50%; the Overnight Index (OIS) market is pricing in a 95% chance of a rate cut, with around 62 basis points of easing priced in for the entire year (little over two rate cuts). A reduction tomorrow will unlikely move the market’s dial much because a cut is largely priced in. However, according to Bloomberg’s survey and a Reuters poll, the expectation for a rate cut is not unanimous. USD/CAD Bid Heading into the BoC Decision Heading into the update, the Canadian dollar (CAD) is on track to end a second straight week on the ropes versus the US dollar (USD) as traders trade into the event short the CAD. Forward guidance will be critical to this event as market participants seek insight into the future easing cycle. Still, some desks claim that GDP and inflation forecasts are unlikely to see much change, with the press conference likely to repeat that Canada’s economy is cooling, with each central bank rate decision taken on a meeting-by-meeting approach, and reiterating that the BoC is not close to the limit of undercutting the US Federal Reserve (Fed) on the policy rate spread – markets are pricing in a 25-basis point rate cut for the Fed in September. As you can see from the daily chart below for the USD/CAD currency pair, buyers and sellers have been limited between support and resistance at CAD1.3615 and CAD1.3775, respectively, since the beginning of May. You will also note that the currency pair recently touched gloves with the upper boundary of said range and, as of writing has demonstrated little in the way of bearish pressure. Fuelled on a more dovish-than-expected BoC tomorrow, a breakout to the upside throws light on 10 November 2023 peak of CAD1.3855 and the April 2024 high of CAD1.3846 (black circles). With that being said, a robust push higher could see these peaks engulfed and resistance nestled directly above the two pinnacles at CAD1.3881 brought into the fight.
Long
by FPMarkets
Early Entry around Range Resistance Overview CADJPY is showing signs of upside momentum weakening. Price may attempt a bearish move to the weekly range support around 95.00. The Details Fundamental Analysis The Bank of Canada (BOC) may be one of the first central banks (apart from the ECB) to cut interest rates. On the other hand, the Bank of Japan (BOJ) will likely start hiking rates in 2024. This means CAD weakness and JPY strength. Canadian inflation is nearing 2%, and signs of recession increase the chances of the BOC cutting rates. Technical Analysis The most recent swing high was slightly higher than the previous one, suggesting upside momentum is weakening. There is a bearish divergence on the weekly RSI. Things to consider Canadian inflation is currently (as of early January 2024) at 3.10% and declining. If inflation becomes stubborn or increases, the chances of BOC rate cuts become less likely. The swap rate for shoring this pair is not favourable. Multiple short-term positions may be more profitable than a long-term position. Price action may form a fake-out move above 110.00 before becoming bearish.
Short
by Samuel_Morton_Trader
Will a Bank of Canada taper lift CAD?The Canadian dollar continues to drift this week. In the Tuesday session, USD/CAD is trading at 1.2532, down 0.02% on the day. All eyes will be on the Bank of Canada policy meeting on Wednesday (14:00 GMT). The bank is expected to maintain interest rates at 0.25%, where they have been pegged since last March, at the start of the Covid-19 pandemic. Any drama will revolve around the bank's QE programme, with the BoC widely expected to trim weekly government bond purchases from CAD 4 billion to 3 billion. A trimming of QE would be in response to the economic recovery, which has been faster than anticipated. Some 90% of jobs lost during Covid have been recovered and GDP is expected to climb above pre-pandemic levels in the second quarter. With the economy clearly moving in the right direction, the cautious BoC will likely respond with a tapering QE, while maintaining interest rates and its accommodative monetary policy. Although a tapering move is expected, the Canadian dollar could gain ground on Wednesday due to the sheer significance of such a move - it would mark the first tightening in policy by any major central bank since the Covid pandemic. We could also see the Canadian dollar react to the tone of the rate statement. A "less dovish" tone than expected from the bank could improve sentiment towards the Canadian dollar and send the currency to higher ground. Canada will also release inflation data on Wednesday (12:30 GMT), although these numbers are likely to be overshadowed by the BoC rate decision. Headline inflation is expected to tick higher to 0.6%, up from 0.5%, while Core CPI is expected to fall to 0.0%, down from 0.3%. There is support at 1.2446. This is followed by support at 1.2386. On the upside, we have resistance levels at 1.2598 and 1.2690
by OANDA
BoC and Governor Poloz rate announcement in focus-25.10.2017Hey guys, I'm long the USD. I don't think governor Poloz will hike rates anytime time year. Maybe next year if things get hot. Economic indicators are weak. Earlier, Retail sales and CPI under performed and disappointed investors. Furthermore, BoC was said to have angered PM Trudeau when they hiked rate in two quick succession claiming they were offsetting 2015 rate cuts. Many observers said they it was the herding effect after Feds set their rate hike range in Q4 2016. For now, we go long because of technical considerations. We can see that upper BB price action banding after a break above resistance trend line. If price action continues to chart higher and stay above 1.27 over an extended period of time, then we enter long and aim for 300 pips minimum. I recommend trading as follows: Buy Stop: 1.2730 Stop Loss: below 1.2630 Take Profit: above 1.30 Have a good day. You can also visit our analysis section at ForexToday here:https://tinyurl.com/usdcadanalysis
Long
by Kipyegonn