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CAD Weakness Continues as BoC to Wait-and-See

CAD Weakness Continues as BoC to Wait-and-See

James Stanley, Senior Strategist

Talking Points:

- Today at 10AM ET brings the Bank of Canada’s rate decision, and there are minimal expectations for any actual moves. Today’s meeting is all about the policy statement.

- The Canadian Dollar was on a rampage throughout most of the summer, but just days after that second rate hike in September, resistance set in and CAD weakness began to show again. That was seven weeks ago, and CAD weakness continues as USD/CAD has just set a fresh two-month high.

- Want to see how CAD and USD are holding up to the DailyFX Forecasts? Click here for full access.

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Today at 10 AM brings the Bank of Canada rate decision, and there are minimal expectations for any actual moves. The BoC hiked rates in July and again, unexpectedly, in September. The July move was the first rate hike from the bank in over seven years, and this shift from the BoC brought in a fairly aggressive run of strength in the Canadian Dollar that lasted for most of the summer.

But just a couple of days after that September rate hike, CAD sellers began to show-up and have dominated the flow in USD/CAD price action for much of the time since. Prices are now above where they were before that September rate hike, and with a stronger U.S. Dollar combined with little expectation for any further moves from the BoC, prices appear poised to re-test the August highs around 1.2775.

USD/CAD Four-Hour: Fresh Two Month Highs as Summer Swoon Yields to September Bulls

CAD Weakness Continues as BoC to Wait-and-See

Chart prepared by James Stanley

Today’s BoC meeting is all about the policy statement. As discussed by our own David Song earlier this morning, recent commentary from BoC Governor Stephen Poloz suggest a more dovish stance in the near-term along with a more gradual path in normalizing monetary policy. At that September rate hike, Governor Poloz said that “future monetary policy decisions are not predetermined and will be guided by incoming economic data and financial market developments as price growth continues to run below the 2% target.”

Since that September rate hike - Mr. Poloz has said “recent data point clearly to a moderation in the second half of the year,” and this was coupled with the warning that “the story of inflation in Canada over the past few years has been dominated by downside risks.” Collectively, these comments sound as if they’re coming from a Central Banker endorsing a wait-and-see approach with future rate hikes as caution is in abundance around inflation.

On that front of inflation – last week’s Canadian CPI came-in a bit below expectations, printing at 1.6% versus the expected 1.7%. The bulk of this gain, however, came from energy prices and that was largely looked at as CAD-negative as a run of weakness in the Canadian Dollar followed. The more troubling data point from last week came from Canadian retail sales, which absolutely cratered in the month, contracting by -.3% versus the expected .5% gain.

This does not produce an accommodating backdrop for tighter monetary policy, and as we near this morning’s rate decision, CAD sellers are continuing to populate. For those looking to trade bullish continuation in USD/CAD, there are a series of levels that can be usable for near-term approaches. In yesterday’s article, we looked at a long-term Fibonacci level at 1.2672, as it was helping to set resistance. Since then, prices have nudged over this level, and over the past day we’ve seen this price begin to show as support. On the four-hour chart below, we’ve added three resistance levels below the 1.3000 psychological level, and four support levels based on recent price action. Traders can look for a move to resistance to validate further bullish continuation, at which point entry can be afforded by looking to get long at a higher-low around the prior level of resistance (new support).

USD/CAD Four-Hour: Bullish Channel Drives to Fresh Two-Month Highs

CAD Weakness Continues as BoC to Wait-and-See

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

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