BOC rate hike looms but how will CAD react?
Fawad Razaqzada October 24, 2018 7:30 AM
The Bank of Canada is due to increase interest rates to 1.75% at the conclusion of its meeting today. This will be an easy decision thanks to an improving economy and the fact that Canada finally secured a trade deal (USMCA) with its two southern neighbours. However, will this be enough to lift the Canadian Dollar? Given the recent soft inflation figures and falls in oil prices, investors are wondering whether the BOC will err on the side of caution about future rate hikes. Read our full BOC preview, written by my US colleague Matt Weller, HERE.
EUR/CAD for CAD bulls, USD/CAD for CAD bears
If the BoC is overall more hawkish than expected then the Canadian dollar ‘should’ go up today, while a dovish central bank could weigh heavily on the commodity currency. If the BOC is more dovish then we would favour looking for bullish setups on the USD/CAD, with the US dollar still being among the strongest of currencies out there. However, in the event of a hawkish surprise, we would favour looking for bullish opportunities on CAD against a weaker rival, such as the euro, which has been hit by Italian and Brexit concerns and today by soft Eurozone PMI data, reducing the prospects of a hawkish surprise from the ECB’s press conference on Thursday.
USD/CAD testing bear trend
The USD/CAD’s technical outlook hasn’t changed much from Matt’s preview, with price still testing the top of its bearish channel off the July highs around the 1.31 handle. As mentioned, if the BOC turns out to be more dovish than expected then the USD/CAD could break higher. However if the central bank is more dovish then the USD/CAD could certainly resume its bearish trend, although in this case we would favour looking for bearish setups on the EUR/CAD instead.
Source: eSignal and FOREX.com.
EUR/CAD could drop to new 2018 low on hawkish surprise
The EUR/CAD, meanwhile, has been making a series of lower lows and lower highs since topping out around 1.6150 in March. Rates have dropped to a low so far this year of 1.4760. In the event of a hawkish surprise, we wouldn’t be surprised if it were to hit a new low for the year below this level. At the time of writing, the EUR/CAD was testing liquidity just below short-term support at around 1.4930, so there was a possibility for a rebound towards 1.5000 resistance ahead of the BOC rate decision. The key resistance area is around 1.5060-1.5140. In the event rates go above this zone then we would be on bullish alert, although technically the downward trend wouldn’t be over unless rates go on to make a high above the most recent peak at 1.5320.
Source: eSignal and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.