USD/CAD Analysis and Talking Points
- BoC to Hike 50bps
- USD/CAD Falls to Key Support
OVERVIEW: The Bank of Canada is expected to deliver another 50bps rate hike as had been previously suggested in light of elevated inflation and a robust economy. Meanwhile, the accompanying statement is likely to reiterate that further tightening of monetary policy will be needed.
WHAT IS PRICED IN?: As it stands, OIS markets are pricing in 55bps worth of tightening, therefore, while there is a 20% probability of a 75bps move, the base case is for the Bank to stick with 50bps increments. Therefore, the bar has been set high for the BoC to overdeliver on the hawkish front, meaning that there is a risk of some disappointment for CAD as market participants slightly unwind bets of a 75bps move.
Bank of Canada Rate Expectations
| Change in | Longs | Shorts | OI |
| Daily | -2% | 12% | 6% |
| Weekly | -3% | -7% | -6% |
USD/CAD Drops to Support
With the month-end noise now out the way, where we have seen a sizeable rally in risk sentiment alongside a pullback in the US Dollar. From a positioning standpoint, this is a lot cleaner with USD/CAD testing key support in the form of its 200DMA. Concerns over the global growth picture will persist in the near term and thus the bias is still for USD to find support on dips and equity rallies to be sold into.
USD/CAD Chart: Daily Time Frame
Source: Refinitiv
