Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

USD/CAD Quadruple Top Ahead Of BoC Rate Decision

Published 08/12/2021, 12:53 pm
Updated 09/07/2023, 08:31 pm
There is a very clear quadruple top pattern in USD/CAD from 1.2850. Investors have been snapping up Canadian dollars ahead of Wednesday’s monetary policy announcement. The Bank of Canada is widely expected to leave interest rates unchanged, but given consistently positive data, it will reaffirm plans to raise interest rates early next year. When the BoC last met in October, it surprised the market by ending Quantitative Easing suddenly and advanced its forecast for a rate hike from the second half to the second quarter of 2022. Since then, the economy continues to recover from earlier restrictions. Job growth blew past estimates in November with more than 153,000 workers finding new employment. The labor market is not only back to pre-pandemic levels but the economy is at full employment. As indicated by today’s IVEY PMI report, manufacturing activity is up and most importantly, inflation is growing at its fastest pace since 2003.  
 
At this pace, the Bank of Canada can no longer justify the current level of policy accommodation. The market is pricing in anywhere between four to five rate hikes by the BoC next year. With the latest numbers, it would not be out of the question for the central bank to suggest that rates could be increased sooner – the RBNZ surprised with a quarter point hike in October. Omicron could hold the central bank back, but very early signs show that while fast moving, this variant may be less severe than other forms of the virus, which explains why stocks have recovered nearly all of its Omicron losses. If the Bank of Canada emphasizes the high level of inflation and brings forward tightening plans, USD/CAD could extend its slide down to 1.26. 
 
Monetary policy announcements can have a significant impact on currencies. The best performing currency today was the Australian dollar, which rose more than 0.8% after the Reserve Bank left monetary policy unchanged. According to RBA Governor Philip Lowe, “The emergence of the Omicron strain is a new source of uncertainty, but it is not expected to derail the recovery." The economy is expected to return to its pre-Delta path in the first half of 2022. By downplaying Omicron risk, the RBA has fuelled expectations for an earlier rate rise. Having sold off steadily since late October, this is the strongest two-day rally we’ve seen in AUD/USD in six weeks. The New Zealand dollar followed the Australian dollar higher. 
 
In contrast to the commodity currencies, the euro and sterling sold off against the U.S. dollar today. Although the German ZEW survey was not as weak as anticipated – the economic sentiment index dropped to 29.9 instead of 25.1, the current conditions component turned negative for the first time since June. With virus cases on the rise and Omicron spooking some nations back into lockdown, investors expect activity and sentiment to deteriorate further.    

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.