The Canadian dollar continues to have an uneventful week. Currently, USD/CAD is trading at 1.2808, up 0.08% on the day. The Canadian currency has taken a breather, after registering strong gains of 1.59% last week.
Markets eye on Bank of Canada decision
All eyes are on the Bank of Canada policy meeting on Wednesday, which will be the BoC’s final meeting of the year. In the current global environment of ultra-low interest rates, it’s a safe bet that bank members will not be making any changes to the Overnight Rate, which has been pegged at 0.25% since March. The central bank is unlikely to trim rates any lower, with the economic recovery showing some traction. At the same time, the bank has indicated that it could be years before it hikes interest rates.
The BoC is keeping a watchful eye on the economic recovery. Although Covid is not yet under control, there have been some bright spots in the economy, such as employment numbers. The bank, however, has little room to maneuver – rates are close to zero, and the bank is constrained in its bond-buying program. This means that we can expect the message from the BoC to be more of the same. That will likely mean a restatement that rates will not be raised prior to 2023, and QE will continue at the pace of C$4 billion/week.
With little suspense over the rate decision, the markets will be listening to the tone of the rate statement. Will the message be one of optimism? If so, the Canadian dollar could continue its rally against the limping US dollar. Conversely, if policymakers sound concerned about the economy, investors could give the Canadian dollar a thumbs-down.
The daily support and resistance lines are as follows:
- USD/CAD faces weak resistance at 1.2832. Close by, there is resistance at 1.2862
- There is support at 1.2774, followed by a support line at 1.2746
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