CAD Under Pressure

The Canadian Dollar is weakening today ahead of the upcoming Bank of Canada meeting tomorrow. On the back of data last week showing a fresh drop in inflation, traders are sensing the increased likelihood of a further cut from the BOC. Last month, the bank became the first out of the G10 bloc to begin easing rates this year (having been the first to hike post-pandemic) and signalled a willingness to press ahead with further easing.

BOC to Cut Again

With CPI now resuming its downward trajectory, there looks to be room for another rate cut tomorrow which, if seen, should help drive USDCAD higher near-term. Alongside the rate decision, traders will be monitoring the bank’s forward guidance. Any signalled intention to ease further should drive CAD deeper near-term while any language suggesting room to hold rates steady after this cut will likely curtail the selling.

USD & Oil Flows

Away from BOC expectations, the Loonie is also being driven by USD and oil flows. Rising expectations of a Trump presidency are helping underpin USD here while weighing on commodities prices. Crude futures are down sharply from recent highs, adding to bearish sentiment in CAD. While the narrative of an expected Trump win holds, CAD looks likely to remain pressured near-term. The question is whether projected Fed easing will be able to weaken USD materially against this backdrop.

Technical Views

USDCAD

The latest test of support at the 1.3587 level has seen the market bouncing firmly, price is now testing above the bear trend line from YTD highs with 1.2866 the next objective for bulls. Momentum studies are bullish keeping the focus on further upside for now with 1.3976 set as the higher target.