Financial Trading Blog

BOC Interest Rate decision



The Bank of Canada is widely expected to raise rates by another 50bps, with talk of even
75bps. A hawkish BOC could put more pressure on a weak USD/CAD exchange rate.
----------------
Canada's special position
The BOC is facing a similar inflation situation to the Fed, which is why an aggressive tightening
schedule is pretty much priced in by the markets.
But Canada has some unique characteristics that make planning the BOC's future moves a little
more complicated. One of them is the importance of oil in the economy and the other is oil’s
effect on the value of the currency. While higher crude raises inflation, it also supports the
commodity export-orientated Canadian economy.
Unlike the United States, Canada's Q1 GDP is expected to be above government and central
bank expectations around +5.5%. With inflation near 7.0%, the BOC has more than enough
room to tighten policy and get inflation back under control.
It's not that simple
The problem is that tighter policy would likely translate into a stronger Loonie and contribute to
lower inflation. But that would also make it harder for exporters. With the economy getting an
extraordinary push thanks to unusually high oil prices, the BOC can't necessarily bet on high
crude prices to cushion harsh monetary policy.
That might have been one of the reasons why Governor Macklem ruled out a 75bps rate hike
during testimony in Parliament. Consumer confidence is on the backfoot, and household debt
rising. Still, the BOC has argued that consumer demand remains excessive, and promised to
bring rates into "neutral" as fast as possible. Meaning focus will be on the statement to see if
Macklem delivers on the expectation that another aggressive hike will be necessary at the next
meeting.
Loonie below 200 SMA
USD/CAD has reversed course following a false break above $1.30 on May 12 and hasn’t
looked back since. Yesterday, the pair gapped below trendline T1, confirming a break of the 50-
day average and it now trades below its 200-day. If prices remain below $1.2670 for more than
three sessions, we may enter bear market soon as this would be a confirmed breakout.
Major support lies at the $1.2288 low of last October. In the interim, the swing lows of $1.2400
and $1.2450 can act as mid-term supports. But a bounce could also happen at the T2 dynamic
trendline near $1.2500.
Inversely, if Loonie reverses back above the 200-day and the T1 trendline, filling the gap would
be very likely. Above there, $1.2885 makes interim resistance before an attempt at $1.3000.
loonie-boc

Key takeaways


The BOC has more flexibility in controlling inflation than the Fed as its economy relies on oil.
Gov Macklem doesn't want to raise rates aggressively because it would be bad for exporters,
and that’s why USD/CAD traders must demystify how big the next rate hike will likely be.

SEARCH FOR AN ARTICLE:

Enter a keyword and search for all relevant articles

MARKET ANALYSIS

RECENT POSTS

Economic Diary

12.11.24

Read More

Financial Trading Blog

Dow Jones Upside Tempered by Trumpflation Risks

Read More

Daily Market Update

11.11.24 Monday Morning

The euro dipped to $1.0725 as German politics continued to fall apart over the weekend with major questions over...

Read More

Economic Diary

11.11.24

Read More

Weekly Trading Update

Trading Week Ahead

Read More

Financial Trading Blog

Markets Cheer Trump's Return, Eyeing Key Stocks

Read More

DISCLAIMER


Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64% of retail investors lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. For professional clients, spread betting and CFD trading can also result in losses larger than your initial stake or deposit.

Spreadex Ltd is authorised and regulated by the Financial Conduct Authority, provides an execution only service and does not provide advice in any way. Nothing within this update should be deemed to constitute the provision of investment advice, recommendations, any other professional advice in any way, or a record of our trading prices. This update does not constitute or form part of an offer of, or solicitation for a transaction in any financial instrument, nor shall it or the fact of its distribution form the basis of, or be relied on in connection with, any contract therefore. Any persons placing trades based on their interpretation of the comments or information within this update does so entirely at their own risk.

No representation, warranty, or undertaking, express or limited, is given as to the accuracy or completeness of the information or opinions contained within this update by Spreadex Ltd or any of its employees and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions. As such, no reliance may be placed for any purpose on the information and opinions contained within this update.

The information contained within this update is the intellectual property of Spreadex Ltd and is protected by UK and International copyright laws. All rights reserved. Users may however freely download, distribute and reproduce extracts of the contents, subject always to accrediting Spreadex Ltd as the source and providing a hyperlink to www.spreadex.com.