Tomorrow is the regular Bank of Canada rate announcement, and while expectations are for no change, do not be surprised if the BoC says it will hike at its next meeting. Traders are now believing that the BoC can only stand on the side lines for so log as the US Federal Reserve continues with its rate hike program. The BoC likes to maintain a reasonable spread in order to allow a bit of a competitive edge, however in today’s political climate, the US would not look kindly to the spread being too wide.
USDCAD 1.2522, 1.2508, 1.2500 1.2568, 1.2580, 1.2588
USD-CAD remained heavy after posting a two-month low last Wednesday at 1.2544. A 8% surge in oil prices over the last week to 40-month highs has given the Canadian dollar a boost, helping offset disappointment from the news that an announcement on the NAFTA renegotiation will be delayed. The latest price action in USD-CAD affirms a downside trend that’s been developing over the last three weeks, from levels above 1.3100, and we expect more downside. Initial resistance is at 1.2574-75. The BoC meets on policy this week (announcing Wednesday). Our projection remains for no change to the 1.25% rate setting, along with a cautiously constructive growth outlook salted with trade uncertainty. An as-expected outing would maintain the base-case for further gradual rate hikes this year. The BoC will also release the Monetary Policy Report. GDP is on track to undershoot the BoC’s 2.5% estimate in Q1 (we see +1.5%), so it will be interesting to see how they view growth prospects for this year and next.
EUR-USD printed a three-week high above 1.2400 before a sub-forecast German ZEW survey put a lid on euro buying. In the bigger view, EUR-USD remains near the midway levels of a broad consolidation range that’s been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time.