The real focus is on the Bank of Canada - BBH

Global Currency Strategy Team at Brown Brothers Harriman & Co. (BBH) provides a brief overview for the upcoming BOC monetary policy decision, due to be announced later during the NA session.

Key quotes:

“Strong jobs data and the closing of the output gap, while signals from the central bank indicate that it wants to remove more accommodation, has fanned rate hike expectations.  Interpolating from the OIS, there appears to be a nearly 90% chance of a hike discounted.  We have cautioned that there is risk of either "buy the rumor sell the fact" kind of post-meeting activity or outright disappointment.  The market seems too aggressive in pricing in three hikes this year.  While a dovish hike seems to be a likely scenario, there are some that anticipate a hawkish hold.”

“The US dollar slumped 4.35% against the Canadian dollar from around mid-December to January 5, when it briefly traded through CAD1.2390.  This level was the 61.8% retracement of the US dollar rally from early September.  It has chopped around between that CAD1.2390 and CAD1.2600 for the better part of past two weeks.  Our reading of the technical indicators also suggest the US dollar is trying to turn higher.”