The Canadian dollar is slightly lower on Tuesday. In the European session, USD/CAD is trading at 1.3620, up 0.24%.
What does the Bank of Canada have planned?
The Bank of Canada has been aggressive in its tightening, including a whopping full-point hike in July, which brought the cash rate to 2.50%. The BoC has been gradually easing since then, raising rates by 75 bp and then 50 bp, bringing the cash rate to 3.75%. Will the trend continue on Wednesday? According to the markets, probably yes. There is a 72% chance of a 25 bp move, with a 28% likelihood of a second straight 50 bp move.
At the October meeting, there was a 50/50 split over whether the BoC would raise rates by 50 or 75 bp, and the Bank opted for the more conservative move. With the Canadian economy showing signs of slowing down amidst an uncertain global outlook, a modest 25-bp hike would make sense. Still, it must be remembered that inflation remains very high at 6.9% and the BoC has shown that it is willing to keep the rate pedal on the floor if necessary. If the BoC goes for the 50 bp increase, it would be viewed as a hawkish surprise which would likely boost the Canadian dollar.
What can we expect from the BoC in 2023? The terminal rate is projected at around 4.5%, which would mean several more rate hikes early in the New Year. Of course, rate policy will be heavily dictated by key data such as employment, consumer spending and inflation. In addition, the BoC will want to keep pace (or close to it) with the Federal Reserve, which is widely expected to raise rates by 50 bp next week.
USD/CAD technical
-
USD/CAD is testing resistance at 1.3619. Above, there is resistance at 1.3762.
-
There is support at 1.3502 and 1.3359.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.
Opinions are the authors — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Recommended Content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.