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Upbeat BoC to Spur Larger USD/CAD Correction- All Eyes on 1.2800

Upbeat BoC to Spur Larger USD/CAD Correction- All Eyes on 1.2800

2015-10-21 08:00:00
David Song, Shuyang Ren,
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- Bank of Canada (BoC) Expected to Keep Benchmark Interest Rate to Record-Low of 0.50%.

- Will Governor Stephen Poloz Highlight an Improved Outlook for Canada?

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Trading the News: Bank of Canada Interest Rate Decision

According to a Bloomberg News survey, 25 of the 26 economists polled forecast the Bank of Canada (BoC) to keep the benchmark interest at 0.50%, but a material shift in the policy outlook may boost the appeal of the Canadian dollar should the central bank sounds more upbeat this time around.

What’s Expected:

USD/CAD BoC Rate Decision

Click Here for the DailyFX Calendar

Why Is This Event Important:

Despite the technical recession in Canada, BoC Governor Stephen Poloz may endorse an improved forecast for the region and highlight a more hawkish stance for monetary policy as ‘economic activity continues to be underpinned by solid household spending and a firm recovery in the United States.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Net Change in Employment (SEP)

10.0K

12.1K

Gross Domestic Product (YoY) (JUL)

0.7%

0.8%

Consumer Price Index Core (YoY) (AUG)

2.1%

2.1%

The BoC may be well on its way to conclude its easing cycle amid sticky price growth accompanied by the ongoing improvement in the labor market, and an upbeat policy statement may heighten demand for the Canadian dollar as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (SEP)

--

-2.1%

Ivey Purchasing Manager Index s.a. (SEP)

54.0

53.7

Retail Sales (MoM) (JUL)

0.7%

0.5%

However, the ongoing adjustment in the real economy paired with concerns surrounding the housing market may push the BoC to retain a cautious outlook, and dovish comments from Governor Poloz may drag on the loonie as it spurs bets for lower borrowing-costs.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Governor Poloz Endorses Improved Outlook

  • Need red, five-minute candle following the rate decision for a potential short USD/CAD trade.
  • If market reaction favors a bullish loonie trade, sell USD/CAD with two separate position.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bearish CAD Trade: BoC Keeps Door Open for Additional Support

  • Need green, five-minute candle to consider a long USD/CAD position.
  • Carry out the same setup as the bullish Canadian dollar trade, just in the opposite direction.

Read More:

Price & Time: Do Or Die This Week For USD/CAD?

USD/CAD Wedged Between Trendline and September Low pre-BoC

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Even though the Relative Strength Index (RSI) rebounds ahead of oversold territory, USD/CAD remains at risk for a further decline as the oscillator remains the bearish trend from Back in July, while price struggles to push back above the former soft support zone around 1.3080 (61.8% expansion) to 1.3140 (23.6% retracement).
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd has flipped net-long USD/CAD on October 2, with the ratio climbing to +1.34 as 57% of traders are now long.
  • Interim Resistance: 1.3440 (50% expansion) to 1.3460 (61.8% retracement)
  • Interim Support: 1.2790 (50% retracement) to 1.2800 (38.2% expansion)

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Impact that the BOC Interest Rate decision has had on CAD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

SEP 2015

09/09/2015 14:00 GMT

0.50%

0.50%

-57

+12

September 2015 Bank of Canada(BOC) Interest Rate Decision

USD/CAD Chart

As expected, the Bank of Canada (BoC) held the benchmark rate steady at 0.50% in September, with Governor Stephen Poloz largely endorsing an upbeat outlook for the region as lower borrowing-costs work their way through the real economy. Despite the positive tone, lower commodity prices accompanied by the slowdown in global growth may encourage the central bank to carry the record-low interest rate into 2016 in an effort to further insulate the region. The spike lower in USD/CAD following the rate decision was short-lived, with USD/CAD climbing back above the 1.3200 handle to end the North American session at 1.3256.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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