BOC Up Next
The key event focus today will be the Bank of Canada rate decision. Given that the BOC has been among the more hawkish of the G10 central banks, there is plenty of attention on today’s meeting, with the potential for decent CAD-linked volatility. In October, the BOC announced an immediate end to QE along with brining forward its rate hike guidance from an initial hike in 2024 to an initial hike in 2022. This meeting was a significant bullish catalyst for CAD and, along with the rally in oil prices at the time (driven by the global energy market crisis), CAD price forecasts began to see heavy upward revisions as market players upgraded their BOC rate hike expectations for the year ahead.
Solid Economic Recovery
Fast forward to today and what do we have? Well, the economy has continued to boom back into life in Canada. Labour market strengthening, surging inflation and a broad pick up in activity, along with rising vaccination rates and increased consumer optimism, have all helped paint a rosier picture than we are seeing elsewhere, e.g., in Europe.
Omicron Risks
The fall back in oil prices over November has seen CAD price action reversing across the month with USDCAD rallying from lows of around 1.23 at the end of October to highs around 1.28 at the end of November. Some weakening in the exchange rate is no bad thing although, the sharp drop in oil prices represents a blow to Canada’s export income. The emergence of the Omicron variant over the last fortnight also represents fresh risks. We’ve heard global leaders and health authorities warning over the threat of a greater outbreak than prior strains which is obviously a cause for concern for central banks in terms of progressing with tightening.
Rates On Hold But Hawkish Guidance
However, with oil prices back on the rebound now and with Omicron risks looking a little more diluted now, conditions appear mostly favourable for CAD. In light of the residual risks around Omicron however it appears more reasonable to expect that the BOC will remain on hold today ( no hike), though the forward guidance is likely to be hawkish. Expect the BOC to talk up the strength of the economy while acknowledging, yet downplaying, the risks around Omicron. Consequently, the meeting is likely to be net-positive for CAD today.
Technical Views
USDCAD
The market failed yet again at the latest test of the 1.2814 resistance band, which has been a key upside obstacle for the pair over this year. With MACD and RSI turning sharply lower, there is room for the decline to continue lower towards a test of the rising channel low, with structural support between 1.2368-1.2469. While this region holds, the longer term view is in favour of a break higher towards
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.