USD/CAD looks bullish ahead of the BOC

  Kira Iukhtenko

Canadian dollar is worth watching on the new week: Bank of Canada meeting on Wednesday, retail sales and inflation data on Friday will likely keep the market on the stretch.

Fundamental background

BOC is widely expected to leave interest rate unchanged at 0.75% in April. However, these days we are much more concerned by the bank’s Monetary Policy Report. Current BOC economic forecasts still do not fully consider the oil shock effect, so the new ones will likely reflect lower inflation and growth expectations. Employment figures gave out a warning signal last week: the upbeat headline figures were achieved only due to a surge in part-time jobs, while the full-time employment went down dramatically. What is more, despite the current oil stabilization, price decline could easily resume in June when the impact of “Iran factor” increases. In this case, pressure on the export-dependent Canadian economy will resume.

Gloomy economic prospects will likely push the Canadian central bank to new rate cuts in the coming months. We forecast another 50 bps cut over the May-September period. While the Fed is expected to launch a rate-hiking cycle during the same months, monetary policy divergence will likely put the USD/CAD pair under pressure, offering new trading opportunities.

Technical picture

USD/CAD rally has clearly paused over the past 2.5 months, but the overall trend remains bullish. The pair failed to top despite the overall USD selloff in March. Solid buy orders are clustered around the 1.2400 mark: you may see the basing candles formed recently on a daily chart.

This week’s bunch of releases creates a high chance for pushing above the local 1.2700 resistance. Buy the pair on a breakout, targeting 1.2780 and 1.2830. From a broader view, the price is likely to leave the current consolidative range in Q2 with a medium-term target at 1.3060. The picture remains bullish above 1.2350.

Chart. Daily USD/CAD

Data to watch on the new week:

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