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BOC in Focus

The Canadian Dollar has softened a little on the back of yesterday’s inflation data. Canadian CPI was seen declining again last month, further dampening tightening expectations. The BOC has recently warned that its discussions have now shifted away from whether to tighten further, instead focusing on when the bank should cut rates. This latest data has seen traders bringing their rate-cut expectations forward amidst the ongoing deflationary trend we’re seeing.
 

CPI Falls Further

With inflation having fallen to 2.9% from 3.4% over the prior month, CPI is close to the bank’s 2% target. Indeed, some banks, such as BMO, are already suggesting that if adjusted for mortgage interest charges, CPI would already be sitting at 2%. With this in mind, a BOC rate cut in the coming months looks increasingly plausible.
 

Trudeau Hopes for Rate Cuts

We recently heard from Canadian PM Trudeau who broke from convention to comment on monetary policy. Trudeau said during a speech in Vancouver yesterday that he hoped the BOC would bring rates down soon, though added the caveat that it was, of course, their decision to make. These comments were followed by harsher comments from BC premier David Eby who scolded the bank for driving up living and housing costs with its tightening program.
 

BOC/Fed Divergence

With dovish BOC expectations becoming more entrench, CAD looks vulnerable to fresh downside near-term. This will be seen clearly against USD if today’s FOMC minutes fail to deliver any dovish signals, leading USD higher consequently.
 

Technical Views

USDCAD

The rally off the sub 1.3280 lows has stalled for now into a test of the bear trend line from 2022 highs. Price remains tightly congested around the 1.3501 level. However, with momentum studies bullish, the focus is on a breakout higher here and a test of the 1.3683 level next. Should we fail here, however, 1.3280 sits below as key support. 

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