Expect USD/CAD sellers

The CAD has been strongly supported over the last 24 hours after a bullish shift from the Bank of Canada. The CAD rose by its most since June 2020 against the USD. The Bank of Canada is now the first central bank to exit its stimulus program after it announced that asset purchases would be reduced from $4 billion a week down to $3billion a week. On top of this, the BoC brought forward its guidance expecting an interest rate rise in 2022 vs expectation of rate rise in 2023.

The USD is weak at the moment as the US 10 year yields have failed to rise despite a good run of recent US data including a stronger than expected US CPI print, US retail sales, NFP data, PMI manufacturing and services data. Many analysts and investors still see the medium-term outlook for the USD as bearish.

In these conditions expect USDCAD sellers on rallies.

Key trade risks

  • Any further rise in Canadian COVID-19 cases will put a strain on this bullish outlook.

  • Any sharp falls in the oil markets on rising COVID-19 cases will weaken CAD.

  • If the FOMC meets next week and announce bond tapering, that will support the USD.

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