Canadian Dollar Price (USD/CAD), News, and Analysis:
- BoC expected to leave policy unchanged, but will they give the markets a hint?
- Oil continues to rally, boosting the Loonie.
The Bank of Canada is expected to leave all monetary policy measures unchanged at today’s meeting after announcing a cutback in bond purchases at the April meeting. BoC governor Tiff Macklem however may hint at further tapering down the road if he, and the MPC, believe that the rebound in the Canadian economy is sustainable. Canadian GDP rose by 5.6% in Q1, helped by a robust employment market, although the economy contracted by 0.8% in April as localised lockdown measures were reintroduced to prevent a third covid-19 outbreak. The central bank revised 2021 growth upwards to 6.5% from a prior 4.0%, with growth moderating to 3.75% in 2022 and 3.25% in 2023. The central bank also sees inflation rising to the high end of their 1%-3% range, although this is seen as temporary with price pressures returning to 2% in H2 2022 as slack in the economy is absorbed.
The rally in oil prices continues unabated with US crude above $70/bbl. and Brent crude above $72/bbl. The Canadian dollar remains strengthened by the oil complex and with economies around the world re-opening at pace, there seems little reason for oil to fall much below these levels.
On the other side of the pair, the US dollar continues to build support despite lower US Treasury yields. On Thursday, the latest look at US CPI is expected to show price pressures building with the core y/y rate rising to 3.4% from 3% in April, while the wider inflation rate is seen hitting 4.7% from 4.2% in the prior reading.
USD/CAD has been a range trader’s dream over the last month with a 2 point range dominating trade. This range may come under pressure from both the BoC and the US inflation release and with USD/CAD sitting in the middle of the 1.2007/1.2200 range, it may be prudent to wait until tomorrow afternoon before entering into a trade to see if the range continues to hold.
USD/CAD Daily Price Chart (September 2020 – June 9, 2021)
IG Retail trader data show 76.02% of traders are net-long with the ratio of traders long to short at 3.17 to 1. The number of traders net-long is 2.59% lower than yesterday and 4.65% lower from last week, while the number of traders net-short is 11.20% higher than yesterday and 22.00% higher from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.
Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/CAD price trend may soon reverse higher despite the fact traders remain net-long.
What is your view on USD/CAD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.
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