Policymakers language is the key component for the Canadian Dollar this week
The Bank of Canada is set to meet to decide on interest rates later today, with Canadian policymakers language towards recent developments surrounding the domestic economy increasingly likely to have an impact on the direction of the Canadian Dollar. Recent data points have thrown up significant surprises to economists, leaving the prospect of a rate increase this year still on the table.
Recent jobs data from the Canadian economy outperformed to such a degree that is was nearly ten times over the initial estimates that analysts had been predicting. The April jobs report was officially the strongest on record and a sharp turnaround in the fortunes of the Canadian jobs market. The better than expected number helped to push the Canadian unemployment rate down to just 5.7 percent, further surprising analysts after the negative March jobs number.
Other Canadian data points have also been outperforming, with April’s retail sales figures officially the highest since May 2018, while consumer confidence also saw a sharp pick-up. The improving data points certainly seem to underscore the Bank of Canada’s recent analysis that the underperformance of the Canadian economy during the first quarter of 2019 may only be temporary.
The Bank of Canada still has to contend with persistently weak domestic inflation and a worsening of the trade dispute between the United States and Chinese governments. The fate of the Canadian Dollar would in the short-term appear to hinge on exactly how the Bank of Canada communicate the recent changes in the Canadian economy, and if they perceive the situation to have improved enough to warrant a more hawkish stance.
Economists expect almost zero chance that the Bank of Canada will move on interest rate later today, although strong volatility in the Canadian Dollar can still be expected when the central bank communicates to market participants its latest thoughts on the recent bumper jobs numbers, weak inflationary situation inside the Canadian economy, and the worsening trade war between the two largest economies in the world.
USD/CAD Daily Mountain Chart | Source: ActivTrader
The current trading bias with the USD/CAD remains to the upside, with bulls defending the pair’s 200-day moving average fairly ferociously since the early part of this year. The only silver-lining for bears has been the inability to move above the key former high from last year, around the 1.3630 region. In the medium-term term, until a clear break from the 1.3300 to 1.3630 levels has been established the USD/CAD pair is likely to trade in a broad price range with a definite upward trading bias.
Written by Nathan Batchelor, External Analyst, ActivTrades
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