USD/CAD chipping away at resistance amid BOC’s policy U-turn
Fawad Razaqzada November 26, 2019 1:11 AM
Last week’s Canadian data releases beat expectations, yet the North American dollar finished the week lower against her southern neighbour.
Last week’s Canadian data releases beat expectations, yet the North American dollar finished the week lower against her southern neighbour. Manufacturing and retail sales both fell less than expected, while CPI was in line. The market was focused more on speeches by Bank of Canada’s Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins. Mr Poloz said on Thursday that monetary conditions were “about right,” adding that global conditions have eased a lot. Though his comments were taken by the market as being less dovish than expected and the Canadian dollar rallied, the currency then quickly rebounded on Friday. It looks like investors paid more attention to Wilken’s comments that were made two days earlier, on Tuesday. The latter mentioned that the BOC has room to manoeuvre and other policy tools at its disposal, for example forward guidance. Given that Wilkens is considered a front-runner to take the head position when Poloz’s term ends in mid-2020, it appears like the markets took her comments more seriously than the current leader’s assessment.
Indeed, the USD/CAD managed to rise further today despite more positive news from Canada: wholesale sales rebounded by 1.0% in September after a 1.2% drop the month prior. Up next, we will have Canada’s latest estimates of Current Account and GDP on Thursday and Friday, respectively. Given the CAD’s inability to find support from last week’s slightly positive macro data, I am doubtful whether these figures will provide any meaningful support either. Investors are probably looking forward to the Bank of Canada’s next rate decision on December 4. Although the BOC is expected to hold rates unchanged for the 10th consecutive time, the Canadian dollar could fall sharply if the central bank provides – what the markets are slowly pricing in now – a strong hint of a rate cut.
Source: Trading View and City Index
Ahead of the BOC’s meeting, we may see the USD/CAD drift further higher as investors price in a dovish rate decision, or price out the odds of further rate hikes. Consequently, the USD/CAD could break through the bearish trend line that was being tested at the time of writing circa 1.3300. A daily close above this level could pave the way for a potential rally above the old high of 1.3350 and towards 1.3400 next. However, in the event of a price forming a key reversal candlestick around this 1.3300 level, then in this potential scenario the bullish argument will have to be put on hold.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.