USD/CAD Testing Bearish Channel Resistance Ahead of BOC Wednesday
|The week has gotten off to a slow start in terms of impactful economic data, and the dearth of scheduled releases will carry over through tomorrow’s trade as well. That said, the latter half of the week should be more interesting for FX traders, starting with Wednesday’s Bank of Canada meeting.
Despite weaker-than-expected CPI (-0.4% m/m vs. +0.1% eyed) and Retail Sales figures (-0.1% vs. +0.3%) last week, the Bank of Canada is almost certain to raise interest rates. With President Trump’s trade ire swinging back across the Atlantic toward China, the biggest risk to Canada’s economy (an abrupt end to NAFTA, or a NAFTA-like, trade deal) is now in remission.
Traders have taken notice, with the market-implied odds of a rate hike rising above 90%, so we’re unlikely to see much reaction to the interest rate decision itself. Instead, FX traders will key in on the central bank’s quarterly monetary policy report, including its forward economic projections, as well as BOC Governor Poloz’s subsequent speech, for hints about monetary policy will develop moving forward.
In previous meetings, the BOC has emphasized “uncertainty about trade policies,” so the expected removal of those concerns could support the loonie, especially if it results in more optimistic economic forecasts in the monetary policy report. While Poloz, an experienced central banker, is unlikely to precommit to any course of action, he could leave the door open for two more rate hikes by the middle of next year.
Technical View: USD/CAD
Turning our attention to USD/CAD’s daily chart, rates are pressing the top of the bearish channel off the July highs following a strong rally so far this month. Simultaneously, the RSI indicator is pressing against the “60” level, which has capped rallies in the currency pair for the last four months. In other words, the 1.3125 resistance level will be the key area to watch around the BOC release.
If the BOC comes off as less hawkish than traders expect (even if it still raises interest rates), USD/CAD could conclusively break above 1.3125, clearing the way for a continuation up toward the September high at 1.3225 or the July high near 1.3290 next. Meanwhile, a hawkish outlook from the BOC could keep the bearish channel intact and open the door for a drop back below 1.30 toward 1.2920 or 1.2800 in USD/CAD.
Source: TradingView, FOREX.com
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.