Previewing Bank of Canada Decision Ahead: Crude Oil & CAD

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After the RBA decision yesterday, which had a notable impact on the Aussie, another day comes in with few economic releases during the European and the US session, which may have only a slight impact on the markets. However, the most important event for today comes from Canada, which likely to have the biggest impact on CAD pairs. In today’s report, we will take a look at the Bank of Canada decision, which will be released later today, explain the possible scenarios and the possible impact on the market.

Definitions

BOC Rate Statement: It’s the primary tool the BOC uses to communicate with investors about monetary policy. It contains the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Most importantly, it discusses the economic outlook and offers clues on the outcome of future decisions.

Overnight Rate: Interest rate at which major financial institutions borrow and lend overnight funds between themselves. The rate decision is usually priced into the market, so it tends to be overshadowed by the BOC Rate Statement, which is focused on the future.

Why is This Important?

Short-term interest rates are the paramount factor in currency valuation – traders look at most other indicators merely to predict how rates will change in the future. BOC Governing Council members come to a consensus on where to set the rate.

Crude Oil & CAD

Trading the Canadian Dollar is always tricky when it comes to such events like the Bank of Canada decision. Why? Because the Canadian Dollar has a strong correlation with Crude Oil. Higher crude prices usually lead to stronger CAD, while lower prices may push CAD lower.

With the current volatile oil market due to the OPEC decision last week, the Crude movement is likely to shadow over the Bank of Canada decision, especially of the price of oil moves the opposite direction for any reason. Therefore, traders need to keep a close eye on Crude trends before deciding on CAD trades after BOC decision.

Expectations

The Bank of Canada is expected to keep the current policy unchanged in today’s meeting, especially after the recent positive data, including the labour market, monthly GDP, and even the YoY inflation which ticked higher to 1.5% in October. Therefore, the Bank of Canada might come up with a stable statement, but with caution, especially ahead of the Federal Reserve Decision next week.

USDCAD Technical Outlook

USDCAD Orbex

USDCAD peaked around 1.3570s at the beginning of November. Since then, he pair traded within a tight range until OPEC announced a deal to cut the oil production. The deal was the catalyst for a sharp decline all the way back 1.32 areas as Crude Oil prices added more than 10% of gains. The pair is now trading between the 50% and 61.8% Fibo retracement levels which should be watched very carefully as a breakthrough 1.3246 level might open the way for further declines ahead.

Moreover, that level is considered as a solid support area, after it acted as a strong resistance since March of this year. After the breakout above that resistance in October, the pair is now retesting that level, which should act as a solid support. A bounce is more likely from a technical point of view. However, Crude prices gains might be the catalyst for another leg lower.

Levels To Watch

Symbols S3 S2 S1 Pivot R1 R2 R3
USDCAD 1.3180 1.3214 1.3245 1.3279 1.3310 1.3344 1.3375
EURCAD 1.4072 1.4136 1.4183 1.4247 1.4294 1.4358 1.4405
AUDCAD 0.9777 0.9812 0.9859 0.9894 0.9941 0.9976 1.0023
CADJPY 84.84 85.16 85.52 85.84 86.20 86.52 86.88
GBPCAD 1.6569 1.6685 1.6759 1.6875 1.6949 1.7065 1.7139

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