Wait-and-See BoC to Curb USD/CAD Weakness
- Bank of Canada (BoC) to Keep Benchmark Interest Rate at Record-Low of 0.50%.
- Will Governor Poloz Continue to Tame Market Expectations?
Even though the Bank of Canada (BoC) is widely expected to preserve the current stance in April, the updated monetary policy report may impact the near-term outlook for USD/CAD should the central bank adopt an improved outlook for the region.
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Why Is This Event Important:
The BoC may continue to endorse a wait-and-see approach for monetary policy as ‘subdued growth in wages and hours worked continue to reflect persistent economic slack in Canada,’ and Governor Stephen Poloz may continue to tame interest-rate expectations as officials pledges to look through the temporary factors fueling headline inflation. However, the central bank may change its tune and show a greater willingness to move away from the record-low interest rate amid the positive developments coming out of the real economy.
Expectations: Bullish Argument/Scenario
|Housing Starts (MAR)||214.5K||253.7K|
|Net Change in Employment (MAR)||5.7K||19.4K|
|Retail Sales (MoM) (JAN)||1.5%||2.2%|
The pickup in household consumption accompanied by the ongoing expansion in job growth may encourage the BoC to move away from its accommodative policy stance, and the fresh updates may heighten the appeal of the Canadian dollar should Governor Poloz highlight an improved outlook for growth and inflation.
Risk: Bearish Argument/Scenario
|Business Outlook Future Sales (1Q)||--||21.00|
|International Merchandise Trade (FEB)||0.60B||-0.97B|
|Consumer Price Index (YoY) (FEB)||2.1%||2.0%|
However, weak wage growth paired with waning business confidence may push the BoC to buy more time, and more of the same from the central bank may spark a bearish reaction in the loonie as it drags on interest-rate expectations.
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How To Trade This Event Risk(Video)
Bullish CAD Trade: BoC Highlights Improved Outlook, Adopts Hawkish Tone
- Need a red, five-minute candle following the rate decision to pave the way for a 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 entry on remaining position once initial target is hit; set reasonable limit.
Bearish CAD Trade: Governor Poloz and Co. Attempts to Buy More Time
- Need green, five-minute candle to favor a long USD/CAD trade.
- Implement same setup as the bullish Canadian dollar trade, just in the opposite direction.
Potential Price Targets For The Release
Chart - Created Using Trading View
- Broader outlook for USD/CAD remains constructive as the exchange rate continues to operate within the upward trending channel carried over from 2016, but the pair stands at risk for a larger pullback as it remains capped by the Fibonacci overlap around 1.3450 (23.6% retracement) to 1.3460 (61.8% retracement), while the Relative Strength Index (RSI) fails to preserve the bullish formation from earlier this year; a break/close below the near-term support zone around 1.3280 (50% retracement) to 1.3310 (38.2% retracement) opens up the next downside region of interest around 1.3200 (61.8% retracement).
- Interim Resistance: 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion)
- Interim Support: 1.2980 (61.8% retracement) to 1.3020 (50% expansion)
Check out the short-term technical levels that matter for USD/CAD heading into the BoC Meeting!
If you’re looking for trading ideas, check out our Trading Guides.
Impact that the BoC rate decision has had on USD/CAD during the previous meeting
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
March 2017 Bank of Canada (BoC) Interest Rate Decision
Chart - Created Using Trading View
As expected, the Bank of Canada (BoC) stuck to the sidelines in March and kept the benchmark interest at the record-low of 0.50%, with the central bank largely endorsing a wait-and-see approach as the ‘Governing Council remains attentive to the impact of significant uncertainties weighing on the outlook.’ Moreover, the BoC warned ‘subdued growth in wages and hours worked continue to reflect persistent economic slack in Canada,’ and it seems as though Governor Stephen Poloz remains in no rush to normalize monetary policy as officials argue ‘the Bank’s three measures of core inflation, taken together, continue to point to material excess capacity in the economy. The Canadian dollar struggled to hold its ground following the rate-decision, with USD/CAD bouncing off of the 1.3300 handle to end the day at 1.3326.
--- Written by David Song, Currency Analyst
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