USD/CAD: The balance of risks is tilted to the downside for the Loonie next week – ING
There is a risk that the BoC will turn a notch more dovish at the March meeting. Thus, the Canadian Dollar (CAD) could come under pressure in the next week, economists at ING say.
Mixed data points to BoC’s holding pattern
Policymakers are now looking at a pretty mixed bag when it comes to data. Crucially, the unwinding of rate cut bets in Canada appears much more a consequence of rebounding Fed rate expectations than domestic factors. Ultimately, we think the market is underpricing both Fed and BoC easing cycles, but March may be too early for a big dovish repricing.
We expect next week’s BoC meeting to be of relatively limited relevance for markets. There is a risk that the message turns a bit more dovish (opening more explicitly to rate cuts) and hits CAD, but that should not change the picture dramatically for the Loonie considering how much BoC expectations are tied to Fed pricing.
We expect a stable USD/CAD in March before a USD-led decline in the pair materialises from the second quarter.
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FXStreet Insights Team
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