BOC To Remain on Hold?
The Bank of Canada meets today for its December monetary policy review and while the bank is forecast to keep rates on hold, there is still a risk that the BCO will ease further. At its last meeting, the BOC clearly signalled that, despite the decision to maintain policy at current levels, the bank could ease further if necessary.
Last time around, BOC Governor Poloz warned that the bank “is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist,” adding that “In considering the appropriate path for monetary policy, the Bank will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment.”
Over the last month, the US-Sino trade relations improved, then worsened. While the two sides were initially pegged to sign off on the phase one trade deal at the November APEC meeting, the cancellation of that meeting pushed negotiations into a grey area. While the two sides have continued to suggest that a deal is still coming, relations have broken down over recent days following the US passing a bill offering support to the Hong Kong protestors. The move, which has already provoked retaliation from China, is now feared to have put an end to the chances of a deal being done this year.
With the chances of a US-Sino trade deal firmly under threat, the BOC might look to take preventative measures against another leg lower in domestic and global conditions. Last week, Canadian GDP was seen at just 0.1% over the prior month, highlighting anaemic growth levels. If the US pushes ahead with new tariffs on China in December, this would likely see world growth ratcheting down another level. Given the high level of exposure that the Canadian economy has to commodity prices and trade flows, such an outcome would be a concerning development for the BOC.
As a result of recent developments, if the BOC does not cut rates time around, the statement is likely to contain very dovish forward guidance highlighting the likely need for further easing in coming months (bar a major improvement in global conditions/outlook). With risk assets tumbling, the shift in global sentiment this week is palpable and the BOC is likely to add to this view with a message of caution.
The OPEC meeting at the top of the week will also be another key factor for the BOC to consider. If OPEC extends current cut plus announces deeper restrictions to be applied, this could cause a rally in oil prices, which would support CAD.
However, if OPEC merely extends the cuts (without announcing deeper cuts) or worst-case scenario, makes no changes, the outcome is likely to be bearish for both WTI prices and the Canadian Dollar. With this in mind, the BOC is likely to want to hold odd on any further adjustment until it has a clearer picture of the outlook for WTI price into the first part of next year.
Technical & Trade Views
USDCAD (Bullish above 1.3237)
USDCAD From a technical and trade perspective. USDCAD is still on the underside of the recent 1.3350s resistance though holding above the monthly pivot at 1.3237. With longer-term VWAP positive, an eventual move higher is likely and I will look to use any retest of the monthly R1 at 1.3364 as support. If we retrace lower from here, however, price is likely to find bids into the yearly pivot at 1.3184.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% and 71% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!