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Canadian Dollar Rate Forecast: Markets Set For Probable BoC Rate Hike

Canadian Dollar Rate Forecast: Markets Set For Probable BoC Rate Hike

2018-01-16 08:30:00
Tyler Yell, CMT, Currency Strategist
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Canadian Dollar Rate Talking Points:

  • USD/CAD Price Forecast: CAD looking to strengthen below 1.2350/90 on BoC
  • Bank of Canada rate hike expectations close to 90%. Failure to hike could bring volatility
  • Sentiment Highlight: Retail selling overtakes longs, bias bullish

The Canadian Dollar rate looks ripe for further strengthening as traders prepare for the Bank of Canada to hike rates with 85% probability per Bloomberg data ahead of the meeting. The Canadian Dollar rate could also strengthen should BoC Governor Poloz share a confident view that could further result in front-end Canadian Treasury selling that has been correlated to CAD strength.

A risk that traders should watch for would be a hawkish hold where the BoC fails to hike but encourages the markets to look for a rate hike at an upcoming meeting. Given the pricing in of a rate hike per overnight index swaps, a failure to hike now would like see USD/CAD test resistance at prior resistance near 1.26, which also is where the 100-DMA stands.

Another background data-point that traders should be aware of is the positioning data from the CFTC Commitment of Traders (CoT) report that showed institutions added to their CAD long exposure. The net CAD long is barely positive meaning an aggressive unwind or betting on significant CAD weakness does not appear to be a smart bet as institutions do not have an extended position that they’d need to unwind.

Unlock our Q1 forecast to learn what will drive trends for the US Dollar at the 2018 open!

USD/CAD Chart: Looking Heavy below Key Resistance

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Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions

Major resistance on USD/CAD currently stands at 1.2904, where markets delivered a triple top pattern over Q4 2017. When looking at a triple-top, the breakdown through the bottom of the channel begins to act as a polarity point.

Learn about Triple Tops and Bottoms here from DailyFX

The next key level of resistance will be the support point at the bottom of the triple-top range. The bottom of the range is at 1.2665 to the opening range high of 2018 at 1.2590. This 75-pip range includes a large variety of significant technical points that includes the 38.2% retracement of the December to January 5 range.

Downside targets through the week’s end would be the triple-top target at 1.23335, which is the 100% expansion lower of the triple-top range with an extended downside target at 1.21522, the 1.618% expansion of the same range.

Valuable Insight from IG Client Positioning for USD/CAD: Retail selling overtakes longs, bias bullish

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We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCAD-bullish contrarian trading bias.

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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Contact and discuss markets with Tyler on Twitter: @ForexYell

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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