USD/CAD Tracks March Opening Range Ahead Of BoC Rate Decision

USD/CAD is little changed from the start of the week even as longer-dated US Treasury yields trade above pre-pandemic levels, and more of the same from the BoC may generate a limited market reaction as the central bank is widely expected to retain the current course for monetary policy.

Image of DailyFX economic calendar for Canada

The BoC may merely attempt to buy time as Governor Tiff Macklem and Co. are scheduled to update the Monetary Policy Report (MPR) in April, and the central bank may reiterate its commitment to “continue its QE (quantitative easing) program until the recovery is well underway” as the benchmark interest rate sits at its effective lower bound.

However, the BoC may gradually change its tone over the coming months as the central bank pledges to adjust its QE program “as the Governing Council gains confidence in the strength of the recovery,” and USD/CAD may continue to exhibit the bearish price action seen in 2020 if Governor Macklem and Co. show a greater willingness to switch gears.

Until then, key market themes may continue to influence USD/CAD as the Federal Reserve stays on track to “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month,” and the tilt in retail sentiment also looks poised to persist as traders have been May 2020.

Image of IG Client Sentiment for USD/CAD rate

The IG Client Sentiment report shows 67.87% of traders are still net-long USD/CAD, with the ratio of traders long to short standing at 2.11 to 1.

The number of traders net-long is 7.17% higher than yesterday and 11.93% higher from last week, while the number of traders net-short is 8.22% higher than yesterday and 20.91% lower from last week. The rise in net-long interest along with the decline in net-short position has spurred a further tilt in retail sentiment as 60.41% of traders were net-long USD/CAD last week, and the advance from the February low (1.2468) may turn out to be correction in the broader trend rather than a change in behavior like the price action seen in 2020.

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