Currency Analyst since 2010

Bank of Canada may further weaken CAD

   By Mark Jensen

As we are waiting for the ECB to launch the QE bazooka, it’s worth paying attention to the other central banks in general and the Bank of Canada in particular.

The BOC is to change its forward guidance today to the neutral/dovish side. The reason why many experts are almost certain about this is the falling oil prices. Crude oil, Canada’s biggest export, traded below $50 a barrel in New York. The central bank’s previous forecast of growth of 2.4% this year was based on the assumption that US benchmark crude would trade at an average of $85 a barrel, so the Bank of Canada will likely revise down quarterly inflation and growth projections when it meets today. The BOC sounded rather calm at the beginning of Dec., but since then oil lost more than $20.

Less positive BOC is, of course, a negative factor for Canadian dollar. Although CAD has been declining rather rapidly since the second half of 2014 (and USD/CAD rising), this move was caused by the USD strength. USD/CAD still doesn’t price in much of the dovish BOC risk, so there’s potential for growth.

The first upside target for USD/CAD lies at 1.2200 (76.4% Fibo of the 2009-2011 decline). Support is at 1.2000, 1.1925 and 1.1800.


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