USD/CAD steady ahead of BoC rate decision

Kenny Fisher MarketPulse

The Canadian dollar is drifting on Wednesday, ahead of the Bank of Canada rate decision later today. In the European session, USD/CAD is trading at 1.4181, up 0.10% at the time of writing.

BoC expected to slash rates by 50 basis points

The Bank of Canada is widely expected to end the year on a bang with a dramatic 50-bp cut at today’s rate meeting. The markets have priced in a 50-bp cut at 90%, so it would be a massive surprise if the BoC opts for a modest cut of 25 basis points. The BoC has cut interest rates four times this year, including a jumbo 50-basis point rate cut in October.

BoC policymakers can point to low inflation and a cool labor market to support the case for an oversized 50-bp cut. At the same time, the central bank doesn’t want to get too aggressive in its easing cycle, as core inflation remains around 2.5%, above the BoC’s target of 2%. If the BoC delivers a 50-bp cut, we could see the Canadian dollar lose ground.

Investors are keeping a close eye on the US inflation report which also will be released today. The November report is expected to show that CPI ticked higher. The market estimate stands at 2.7% y/y (vs. 2.6% in Oct.) and 0.3% m/m (vs. 0.2% in Oct.). This is somewhat about the Federal Reserve’s target of 2% but that hasn’t prevented the Fed from cutting rates twice this year. The Fed meets on Dec. 18 and the odds of a 25-bp cut are 86%, according to the CME’s FedWatch tool. A surprising drop in inflation would raise expectations of a 50-bp cut but the Fed appears on track for a modest 25-bp cut.

USD/CAD technical

USD/CAD is testing resistance at 1.4178. Next, there is resistance at 141.99
1.4160 and 1.4139 are the next support levels

Author

Kenny Fisher

MarketPulse

A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities.

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