USDCAD Forecast Ahead of BoC Monetary Policy Reports

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All eyes will be on the Bank of Canada today as the market expects the country’s interest rate unchanged at 0.25%. Will the bank cut down its bond purchases or wait again?

The Canadian Dollar is plummeting against other major currencies in April. Even against the weak dollar, CAD is down so far in April by 0.3%. This is coming despite robust employment reports and better than expected PMIs. The fast dip in the oil price and the general risk-off sentiment this week have further kept the CAD sell-off intact. At the time of writing, the currency has shed over 2.5% against Euro, JPY, Aussie and over 3% against NZD in April so far. However, the decline is not majorly on the back of a bearish oil market as the WTI has gained over 3.8% in April so far. The fall will continue throughout the week if the BoC’s tone is dovish and the Oil price sheds more as expected.

The Bank of Canada is expected to keep the current 0.25% rate unchanged. Although some experts believe the bank will cut down its current bond purchases to probably lead the way for others. Central banks have maintained loose policies in 2021 so far but with economies re-opening faster than expected, a little bit of tightening or tapering is not out of the picture. The recent CAD data are coming better than expected. Canada is gradually raising its daily vaccination rate from just 4 million doses per day a month ago, to the current rate of 10.2 million. Many of the Canadian firms have now declared that the negative impact of the pandemic is way behind them.

The Canadian economy created 259k and 303k in February and March respectively to cut down its unemployment rate to 7.5% against the previous 8.2%. The annual inflation rate stands at 1.1% which is within the 1-3% target range but way behind the 2% mid-point target.

Aside from inflation, the BoC has many reasons to cut down the value of its asset purchasing program going forward from monthly $4 billion to perhaps $3 as suggested by some experts. That might open investors’ minds as they could start expecting other banks especially the US Fed to consider doing something similar. On the other hand, the BoC might play the waiting game again especially if there are cogent strains of dovish issues. Tapering might raise the CAD a bit from the current low levels but a ‘waiting’ BoC with dovish comments will rattle the Petro-currency to fresh April lows across the FX space.

USDCAD technical analysis ahead of BoC

From 1.2364, it’s clear the Loonie is making a 3-wave bullish correction after a very long motive (trend) wave decline. Wave A ended at 1.2648 with a wedge/ending diagonal pattern. Wave B completed a complete double zigzag corrective structure at 1.2470. The current surge looks impulsive and exactly what is expected to complete the last leg C at 1.27 or above. Currently, the price is struggling around the 1.26 psychological level. A dovish BoC will eventually lead to a further surge to 1.27 to complete the 5th sub-wave of wave C. On the other hand, a decline from the current level should be capped around 1.255 -1.257 intraday support zone before the surge continues.

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