Hawkish Expectations Ahead of BOC
Ahead of the FOMC tonight, the Bank of Canada rate decision later today is drawing a great deal of attention given the market’s hawkish expectations. With Inflation seen hitting thirty year highs in December and with BOC governor Macklem noting that slack in the Canadian economy had “substantially diminished”,
current market pricing is showing around a 70% likelihood of a rate hike. If the BOC does press ahead with the expected hike, taking rates back up to 0.5%, this will be firmly bullish for CAD near term. Particularly given the run up we’ve seen in oil prices this month which has been supporting CAD.
On the other hand, if the BOC refrains from hiking at this point, given the level of expectation in the market, this would likely fuel a sharp, near-term unwinding of CAD longs. The extent to which CAD sells off in such conditions would depend on the outlook and guidance given by the BOC. If the BOC refrains from hiking but is resolutely hawkish in its guidance signalling a hike to come in Q1, this might spare CAD bulls from too much pain.
Where to Trade the BOC Decision?
EURCAD
If we do see CAD trade higher today, EURCAD looks primed for further downside. With geopolitical risks growing around Russia/Ukraine tensions, the near-term outlook for EUR looks skewed to the downside. With this in mind, look for a break of the current lows to signal a continuation lower towards the 1.4056 and 1.3876 levels next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.