BoC interest rate decision: what to expect of USD/CAD

The Bank of Canada will hold its monetary policy meeting later in the European evening. Consensus among investors expects the central bank to keep its status quo unchanged today, leaving the overnight rate intact at 0.50%.

According to strategists at TD Securities, “The deceleration in core CPI warrants caution, but ultimately will not be enough to force the Bank of Canada to cut. We look for the statement to convey a tone of cautious optimism and note that risks to the inflation outlook remain balanced. We also look for clarity as to which core inflation measures are monitored by the Bank - any singular mention of CPI-common will be interpreted dovishly due to the underperformance of this specific metric while a reference to all three would deliver a more mixed message”.

Regarding FX, USD/CAD seems to have found decent support in the 1.3000 neighbourhood following the so far 4-week sell off in the greenback, accentuated recently by Trump’s comments on the strength of the Dollar. Spot lost around 6 cents since tops near the 1.3600 handle seen on December 28. Further downside should find decent support in the 1.2985/1.3000 band, where sit recent lows, October 2015 low and the 23.6% Fibo retracement of the 2016 drop.