Hawkish Statement from BOC Will Likely Take USD/CAD Pair to 1.2500

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The USD/CAD pair established a strong double top position at 1.3760 in 2016. After that, the pair dropped as the loonie strengthened against the dollar. It then established a strong double bottom position of 1.2070 in October last year. Since then, the pair has moved up and has reached 1.3190. This has happened as the Bank of Canada has continued to support the Canadian dollar and as the Fed has continued to hike interest rates. This month, the Fed is expected to raise interest rates another time. There are chances that the Fed will have another hike in December.
The Bank of Canada (BOC) officials will conclude the two-day monetary policy meeting today. It will then release the accompanying statement at 1330 (GMT). Traders don’t expect the bank to hike in this meeting. The market is pricing in a 82% chance that the BOC will hike in October. If a rate hike will happen next month, the bank will start sending the forward guidance in today’s meeting.
After the financial crisis, central banks from around the world started embracing forward guidance. In these, the bank provides an indication of whether it will hike, reduce, or hold interest rates in the upcoming meetings. Forward guidance helps the bank remove the uncertainties in the market, which could lead to major shocks in the market. Therefore, if the BOC will hike in October, it will likely start sending signals for this in today’s meeting.
In the July meeting, the Bank of Canada raised interest rates for the first time this year. After the decision, Governor Poloz indicated that the rates were likely to go up because the economy was in good shape.
After that statement, the economy has continued to be in good shape. The employment numbers have increased and inflation has risen. In July, the unemployment rate dropped to 5.80% from the June’s 6.0%. The net employment change was 54.1K, which was better than the expected 31.8K. In addition, trade talks between Canada and the United States have resumed and traders are hoping for a breakthrough. On Friday, the deadline for the talks passed without a deal and today, the talks will resume.
On the other hand, manufacturing activity, retail sales, and housing activity have weakened. In August, building permits and housing starts data disappointed while the existing home sales were better than expected.
Therefore, if the BOC sends a signal that another rate is coming, the chances are that the USD/CAD pair will fall. This will see it test the 1.2500 support level. However, this will be mixed if the US jobs numbers expected tomorrow and Friday will be better than expected. If they will, it will increase the probability for the Fed to hike in December.
The post Hawkish Statement from BOC Will Likely Take USD/CAD Pair to 1.2500 appeared first on Forex.Info.



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