Markets expecting more of the same from the Bank of Canada
The Bank of Canada will be deciding on interest rates this Wednesday, with almost all economists in agreement that the central bank will maintain its benchmark interest rate at 1.75 percent. Given the amount of uncertainty towards the global economic environment, the chances of an interest rate increase from the central bank are extremely low.
The main point of contention is likely to be the Bank of Canada’s economic projections and monetary policy outlook, following the interest rate decision. The economic projections are expecting to remain unchanged, although any skew towards a more dovish outlook could see traders selling the Canadian Dollar.
The Canadian Dollar has recently been on the rise against the greenback, as a combination of solid Canadian economic data and rising oil prices have largely benefited the Canadian currency. It is also noteworthy that the financial markets have largely ignored Canadian PM Justin Trudeau’s recent election victory.
Another key consideration for interest rate traders this week will be if the Federal Reserve cut interest rate again on Wednesday and the Bank of Canada maintain rates. A cut from the FOMC would then put the two nations parallel in terms of interest rates, with the Bank of Canada the more likely of the central banks to increase rates in the future, and actually overtake the United States in terms of yield.
The Canadian Dollar is notoriously difficult to time against the U.S Dollar, and other currencies, hence the USD/CAD pair being named ‘the loonie’. With this in mind, traders looking to make a play of future policy divergence may have to wait until a pullback occurs in the USD/CAD pair as it somewhat oversold at present levels.
USD/CAD Daily Candlestick Chart | Source: ActivTrader
Technical analysis currently highlights that the 1.3200 to 1.3300 area as the more probable and safer area to initiate short positions, rather than playing a breakout under the 1.3000 level. Key upcoming resistance and potential swing-entry areas are currently found at the 1.3250, 1.3290 and 1.3310 levels.
Written by Nathan Batchelor, External Analyst, ActivTrades
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