Home ForexForecasts USD/CAD: Canadian dollar calm ahead of BoC decision

USD/CAD: Canadian dollar calm ahead of BoC decision

by SuperiorInvest

The Canadian dollar fell slightly on Wednesday. In the European session it is trading at 1.3559, 0.09% less.

Bank of Canada expected to hold steady

The Bank of Canada is widely expected to keep the cash rate at 5.0% at today's meeting. The BoC's policy rates have been “higher for longer,” and policymakers are reluctant to lower rates until there is evidence that inflation has been overcome. The BoC's steep tightening cycle has brought inflation down to 2.8%, but it remains considerably higher than the 2% inflation target.

The Bank of Canada has been cautious about lowering rates, with Governor Macklem saying last month it was too early to lower rates as core inflation remained too high. The markets, however, have been more aggressive and anticipate a rate cut in the coming months. While the BoC is likely to hold rates at today's meeting, the odds of a quarter-point cut in June are 78%, up from 70% at the end of March, with a July cut fully priced in.

In an ideal world, the Bank of Canada would wait for the Federal Reserve to raise rates first so that the Bank of Canada's move would have the greatest impact. A Fed cut would likely give a boost to the Canadian dollar, helping to curb inflation.

The U.S. economy, however, continues to surprise with its resilience, the most recent example being last week's explosion in nonfarm payrolls. The strength of the economy and persistent inflation could cause the Federal Reserve to delay an initial rate cut. Markets have priced in a 53% cut in June and a 73% cut in July, according to CME's FedWatch tool.

USD/CAD Technical

  • USD/CAD tested the resistance at 1.3572 earlier. So the next resistance line is 1.3666.
  • 1.3497 and 1.3403 provide support

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