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What to expect from the Bank of Canada and CAD dollar?

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The Bank of Canada is expected to leave its target rate steady at +1.75% tomorrow morning at its Monetary Policy meeting (10:00 am ET).

For Governor Poloz little has changed since the last announcement when he said that the BoC was in “no rush to get back into the saddle” on rate hikes, dropping future rate increase references, while remaining data dependent.

For Canada there have been pluses and minuses since the last rate call.

Data has shown that Canada’s labour market continues to improve (a record month of job gains in April). There has even been some headway on trade with the U.S – steel and aluminum tariffs have been lifted for Canada and Mexico.

Nevertheless, a slowing global economy is expected to have a more negative impact on the Canadian economy, which could influence rate setters to ease monetary policy by year end if trade wars are prolonged.

Despite stronger economic data, the consensus is for the BoC to maintain its “forward-looking” language and to maintain its outlook that “accommodative” policy remains justified.

The risk tomorrow for CAD dealers is the possibility of a ‘hawkish’ tinge from the statement, even if the language remains ‘neutral.’ Because of the recent surprise in data, April showed headline inflation was “in line” with target, retail sales for March surprised higher, while manufacturing sales for March and existing home sales for April also surprised. Collectively, the data could persuade the BoC to dispense somewhat with its recent increasing pessimism.

Despite that, the overwhelming train of thought is that the BoC’s next move is a cut, though not likely until 2020.

However, with no press conference and no new projections to be released, attention is expected to shift to Canada’s Q1 GDP report on Friday (08:30 am ET) and Deputy Governor Wilkins press conference on Thursday (02:15 pm ET).

Loonie:

USD/CAD showed little movement overnight. However, the pair managed to edge higher in European trade and is steady at its intraday highs stateside (C$1.3477).

Tech support:

Current range: 1.3445 to 1.3552

  • 1.3445 is a weak support level
  • 1.3552 is the next resistance line
  • Further levels in both directions:

  • Below: 1.3445, 1.3383, 1.3290 and 1.3200
  • Above: 1.3552, 1.3662 and 1.3771
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