The Bank of Canada will be meeting later today for its monthly monetary policy meeting. Interest rates, currently at 0.50% are expected to remain unchanged amid encouraging data over the past month. While inflation has been somewhat shaky, January’s strong GDP growth is likely to see the BoC stand pat on policy.
Today’s BoC meeting comes after the Canadian government announced its fiscal stimulus spending plans on March 22nd, something which the BoC preferred to wait for. Recent gains in Oil prices alongside broadly positive data could see the BoC take a neutral stance. Following the rate statement, the BoC will also be updating its monetary policy report or MPR which will see the central bank publish its quarterly economic update. Q1 annualized forecasts for GDP was expected to show an upward revision to 3.0% from the current 1.0% with forecasts for the remainder of year also likely to see bullish forecasts.
With the fiscal stimulus spending due to kick in, the BoC’s economic forecasts will gain more attention. Even more so, the Canadian dollar’s first quarter appreciation against the US dollar could also be mentioned. While economic data in Canada was positive, it was before USDCAD started to post a strong decline. On a year to date basis, the Canadian dollar remains as the second top performing currency, gaining 8.04% against the US dollar.
While the expectations are bullish, some analysts believe that the Canadian dollar could actually fall after the BoC’s event. According to Scotiabank’s analysts, BoC Governor Poloz is expected not to take steps to drive up the Canadian dollar even higher. The bank expects the BoC to take a cautious approach reminding markets that the Canadian economy is not out of the woods just as year amid a multi-year adjustment to the commodity price declines.
From a technical perspective, USDCAD broke below its major support at 1.2865 yesterday posting a 9-month low. However, the daily Stochastics oscillator is not confirming the current lows. A bullish divergence could be validated should USDCAD manage to post a daily close above the broken support level at 1.2865. This could potentially set the tone for USDCAD to begin its correction with 1.3136 coming in as the first level of resistance. A break above this level could see USDCAD attempt to move to 1.346 – 1.3387 which marks a major support level that was broken and is pending for a test of resistance.
On the 4-hour chart, USDCAD has formed a short term base at 1.276, but further evidence is required, preferably a higher high being posted to confirm the short-term correction. 1.286 – 1.289 comes in as the initial resistance on this lower time frame chart. A break below 1.276 could, however, see the bearish trend in USDCAD continue further with 1.25 coming in as the next major support level.