Market News & Analysis

Top Story

USD/CAD chipping away at resistance amid BOC’s policy U-turn

Last week’s Canadian data releases beat expectations, yet the North American dollar finished the week lower against her southern neighbour. Manufacturing and retail sales both fell less than expected, while CPI was in line. The market was focused more on speeches by Bank of Canada’s Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins. Mr Poloz said on Thursday that monetary conditions were “about right,” adding that global conditions have eased a lot. Though his comments were taken by the market as being less dovish than expected and the Canadian dollar rallied, the currency then quickly rebounded on Friday. It looks like investors paid more attention to Wilken’s comments that were made two days earlier, on Tuesday. The latter mentioned that the BOC has room to manoeuvre and other policy tools at its disposal, for example forward guidance. Given that Wilkens is considered a front-runner to take the head position when Poloz’s term ends in mid-2020, it appears like the markets took her comments more seriously than the current leader’s assessment.   

Indeed, the USD/CAD managed to rise further today despite more positive news from Canada: wholesale sales rebounded by 1.0% in September after a 1.2% drop the month prior. Up next, we will have Canada’s latest estimates of Current Account and GDP on Thursday and Friday, respectively. Given the CAD’s inability to find support from last week’s slightly positive macro data, I am doubtful whether these figures will provide any meaningful support either. Investors are probably looking forward to the Bank of Canada’s next rate decision on December 4. Although the BOC is expected to hold rates unchanged for the 10th consecutive time, the Canadian dollar could fall sharply if the central bank provides – what the markets are slowly pricing in now – a strong hint of a rate cut.

Source: Trading View and City Index

Ahead of the BOC’s meeting, we may see the USD/CAD drift further higher as investors price in a dovish rate decision, or price out the odds of further rate hikes. Consequently, the USD/CAD could break through the bearish trend line that was being tested at the time of writing circa 1.3300. A daily close above this level could pave the way for a potential rally above the old high of 1.3350 and towards 1.3400 next. However, in the event of a price forming a key reversal candlestick around this 1.3300 level, then in this potential scenario the bullish argument will have to be put on hold.   


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.