The trend in USD/CAD has been quite dull since last month Fed meeting. The pair has remained within the range of 1.35 – 1.34 (+0.40% month-to-date) despite acceleration in trade war headlines. Yet the trend is about to change as today’s Bank of Canada monetary policy meeting, although not showing major changes in forward guidance, should benefit the greenback. The cautious wording of the BoC's statement regarding the trade dispute between the United States and China and the risks to economic growth are the main factors.

Since its 24 April 2019 meeting, the BoC has been following the Fed’s footsteps, removing the prospect of a potential rate hike and emphasizing a more accommodative policy stance instead while lowering its growth forecast from 1.70% to 1.20%. Furthermore, the drop in April manufacturing PMI to contraction territory at 49.7 (prior: 50.5), lowest since February 2016, due to softer client demand, does not bode well for the oil currency if the trade situation worsens. For now, it seems that inflation is maintained in the 1-3% target range, with core and headline April CPI given at 1.80% and 2% and is therefore not an issue for the BoC. In addition, considering the recent development of talks with the US, it seems that concerns over trade discords are addressed as the US is willing to lift tariffs on both Canadian and Mexican steel and aluminum exports, paving the way towards ratification of a new USMCA deal. We would however remain cautious, as downside risks on loonie are rising.


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USD/CAD is trading at 1.3505, approaching 1.3521 short-term.

This report has been prepared by AC Markets and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by AC Markets personnel at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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