USD/CAD Outlook Hinges On Bank Of Canada (BoC) Forward Guidance


USD/CAD trades to a fresh monthly low (1.2471) following the failed attempt to push back above the 50-Day SMA (1.2585), but the Bank of Canada (BoC) interest rate decision may keep the exchange rate within the March range as the central bank is widely expected to retain the current course for monetary policy.


USD/CAD snaps the opening range for April as longer-dated US Treasury yields extend the decline from the start of the month, and the exchange rate may continue to give back the rebound from the March low (1.2365) if the BoC adjusts the forward guidance for monetary policy.

Image of DailyFX economic calendar for Canada

The BoC rate decision may overshadow the update to Canada’s Consumer Price Index (CPI) as the central bank is slated to release the Monetary Policy Report (MPR), and it remains to be seen if the central bank will change its tone as “the Governing Council judges that the recovery continues to require extraordinary monetary policy support.”

It seems as though the BoC is in no rush to switch gears as the central bank plans to “continue its QE (quantitative easing) program until the recovery is well underway,” and more of the same from Governor Tiff Macklem and Co. may generate a bearish reaction in the Canadian Dollar as officials pledge to “provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.”

However, the BoC may strike a less dovish tone following the 303.1K expansion in Canada Employment, and the ongoing improvement in the labor market may encourage the central bank to gradually scale back its emergency measures in 2021 as it instills an improved outlook for growth and inflation.

Until then, USD/CAD may continue to track the March range amid the failed attempt to push back above the 50-Day SMA (1.2585), but the tilt in retail sentiment looks poised to persist as traders have been net-long the pair since May 2020.

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