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USD/CAD to Extend Losses on Upbeat Bank of Canada (BoC)

USD/CAD to Extend Losses on Upbeat Bank of Canada (BoC)

2016-03-09 10:00:00
David Song, Shuyang Ren,
Share:

- Bank of Canada (BoC) Widely Anticipated to Keep Benchmark Interest Rate to Record-Low of 0.50%.

- Will Governor Stephen Poloz Highlight an End of the Easing-Cycle?

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Trading the News: Bank of Canada Interest Rate Decision

According to a Bloomberg News survey, all of the 25 economists polled forecast the Bank of Canada (BoC) to retain its current policy in March, but the accompanying policy statement may boost the appeal of the loonie and spur a further decline in USD/CAD should Governor Stephen Poloz show a greater willingness to move away from the easing cycle.

What’s Expected:

USD/CAD Bank of Canada

Click Here for the DailyFX Calendar

Why Is This Event Important:

Following the ‘insurance’ rate-cuts during the previous year, the BoC may largely endorse a wait-and-see approach throughout 2016 as Governor Poloz & Co. adopt an improved outlook for the region and argue that the risks surrounding the Canadian economy are ‘largely balanced.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

International Merchandise Trade (JAN)

-0.90B

-0.66B

Gross Domestic Product (Quarterly) (Annualized) (4Q)

0.0%

0.8%

Consumer Price Index Core (YoY) (JAN)

1.9%

2.0%

Sticky price growth along with signs of a stronger recovery may encourage the BoC to sounds more upbeat this time around, and the Canadian dollar may continue to strengthen against its U.S. counterpart should the central bank curb bets for lower borrowing-costs.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Ivey Purchasing Manager Index s.a. (FEB)

58.0

53.4

Retail Sales (MoM) (DEC)

-0.9%

-2.2%

Net Change in Employment (JAN)

5.5K

-5.7K

Nevertheless, Governor Poloz may keep the door open to further reduce the benchmark interest rate amid the slowdown in private-sector consumption paired with the ongoing adjustment in the real economy, and the dollar-loonie may largely retrace the decline from earlier should the central bank highlight a weakened outlook for the region.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Governor Poloz Drops Dovish Outlook for Policy

  • 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 Stands Ready to Implement Additional Monetary 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.

Join DailyFX on Demandfor Real-Time Updates on the DailyFX Speculative Sentiment Index!

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term outlook for USD/CAD remains tilted to the upside as the pair preserves the uptrend from back in 2014, but the bearish formation in the Relative Strength Index (RSI) may keep prices capped over the near-term especially as the dollar-loonie tests the 200-Day SMA (1.3286) for the first time in over a year.
  • Interim Resistance: 1.4660 (78.6% retracement) to 1.4730 (78.6% expansion)
  • Interim Support: 1.2860 (78.6% retracement) to 1.2930 (61.8% expansion)

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

USD/CAD SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long USD/CAD since February 25, with the ratio hitting a near-term extreme this month as it climbed to +1.50.
  • The ratio has narrowed to +1.10 ahead of the BoC interest rate decision as 52% of traders remain long, with short positions 10.7% higher from the previous week.

Why and how do we use the SSI in trading? View our video and download the free indicator here

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)

JAN

2016

01/20/2016 15:00 GMT

0.50%

0.50%

-57

+12

January 2016Bank of Canada(BOC) Interest Rate Decision

USD/CAD Chart

As expected, the Bank of Canada (BoC) kept the benchmark rate unchanged at 0.50% in January, but the central bank sounded more upbeat this time around as Governor Stephen Poloz argues that the risks surrounding the region are ‘roughly balanced’ following the ‘insurance’ rate-cuts in 2015. Nevertheless, the BoC retained a cautious outlook for the Canadian economy as the region continues to adjust to persistently low energy prices, temporary softness in the U.S. economy and weaker business investment. The Canadian dollar struggled to retain the bullish reaction to the BoC meeting, with USD/CAD coming off of the 1.4500 handle to end the North American session at 1.4503.

Read More:

Another Big Test Awaits USD/CAD

DailyFX Technical Focus: Nikkei 225 at Resistance

USD/JPY Technical Analysis: The Core FX Pair In The Risk ParadigmUSDOLLAR: Key Levels to Know Heading into NFPs, March Open

Get our top trading opportunities of 2016 HERE

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

--- 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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