USDCAD Forecast: Canadian Dollar Edges Lower, Investors Eye BoC Rate Announcement

The Canadian dollar has posted slight losses in the Wednesday session, erasing the gains seen on Tuesday. Currently, USD/CAD is trading at 1.2584, up 0.26% on the day. In economic news, it’s Rate Day in Ottawa, with the BoC expected to remain on the sidelines. There are no major events in the US, but we’ll hear from FOMC members Williams and Quarles.

The Bank of Canada will be on center stage on Wednesday, with the release of the monthly rate statement. The markets are expecting the bank to maintain the benchmark rate at 1.25 percent. A quarter-point rate hike is expected in the near future, most likely in May or June. The BoC has overestimated Canada’s economic growth, as the economy has fallen well short of the bank’s forecast of 2.5% expansion in both the fourth quarter of 2017 and the first quarter of 2018. In actuality, GDP expanded 1.7% in Q4 and is expected between 1.5% – 2.0% in the first quarter of 2018. Policymakers have some major issues on their plate. The escalating trade war between China and the US could hurt international trade, which would be disastrous for Canada’s export-oriented economy. The protectionist US administration has reopened the NAFTA agreement, threatening to walk away if its demands for major concessions in favor of the US are not met. NAFTA is a crucial component of the Canadian economy, and the loss of NAFTA would be a nightmare for Canada. As well, the Federal Reserve plans a number of rate hikes in 2018, and if the BoC does not raise rates on its end, the Canadian dollar could fall sharply against US currency that is more attractive to investors.

Recent developments in Syria, including a US-led missile strike over the weekend has overshadowed the escalating trade war between the US and China. However, the threat of further tariffs between the world’s largest two economies could again roil the markets. Another salvo was fired on Tuesday, as China slapped a tariff of some 179% on US sorghum crops, which is a livestock feed. China imports about $1 billion of sorghum annually, and the tariff, if it remains in place, will essentially halt US exports of sorghum to China. The Chinese government has threatened to impose tariffs on US soybean exports, valued at some $12 billion each year. If the US opts to retaliate, the specter of an ugly trade war between the US and China could spook investors and hurt minor currencies like the Canadian dollar.

USD/CAD Fundamentals

• 10:00 BoC Monetary Policy Report

• 10:00 BoC Rate Statement

• 10:00 B0C Overnight Rate. Estimate 1.25%

• 10:30 US Crude Oil Inventories. Estimate -0.5M

• 14:00 US Beige Book 

• 15:15 US FOMC Member William Dudley Speaks

• 16:15 US FOMC Member Randal Quarles Speaks

• 8:30 US Philly Fed Manufacturing Index. Estimate 20.8

• 8:30 US Unemployment Claims. Estimate 230K

Open: 1.2551 High: 1.2596 Low: 1.2547 Close: 1.2584

USD/CAD Technical

S3	S2	S1	R1	R2	R3
1.2281	1.2397	1.2496	1.2590	1.2687	1.2757

USD/CAD edged higher in the Asian session and has posted small gains in European trade

• 1.2496 is providing support

• 1.2590 was tested earlier in resistance. It could break in the North American session

• Current range: 1.2496 to 1.2590

Further levels in both directions:

• Below: 1.2496, 1.2397 and 1.2281

• Above: 1.2590, 1.2687, 1.2757 and 1.2850