Jump to content

Bank of Canada expected to slow their tightening pace as inflation rolls over


Recommended Posts

The Bank of Canada looks set to slow their tightening pace, with USDCAD looking primed for another push higher

bg_cadusd_342313.JPGSource: Bloomberg
 
 

 Joshua Mahony | Senior Market Analyst, London | Publication date: Monday 05 December 2022 

When is the Bank of Canada meeting?

The Bank of Canada (BoC) will provide their latest monetary policy announcement at 3pm, on Wednesday 7 December 2022.

Inflation rolling over, allowing the BoC to slow the pace of tightening

Inflation in Canada has largely mimicked the US of late, with the June peak occurring simultaneously between both countries. This recent decline does provide some hope that the central bank will ease its pace of tightening, with markets now predicting the BoC will soon see rates grind top out at 4.25%. That correlation between US and Canadian inflation can be seen below, with the forecasts for interest rates also highlighting how we are expecting to see Canadian rates flatline lower and earlier.

INFLATIONRATESOUTLOOK51222.png

This month sees expectations of a 25-basis point hike from the BoC, with markets attributing a 69% chance that we will see the bank break from the 50-100bp hike range seen over the past five-meetings. The remaining 31% accounts for the chance of another 50-bp hike.

BOCRATES51222.PNGSource: Eikon

Energy remains a key concern for USDCAD?

Crude oil has been on the back foot over much of this year, easing inflation concerns to a degree. The Canadian reliance on energy as a source of revenues has typically helped drive a strong inverse correlation between USDCAD and crude. We can see this relationship below, with WTI flipped to show one significant reason behind the USDCAD rally. With Chinese demand coming back online, there is a chance we could see a strengthening of crude in time. Such a rise in energy costs could subsequently help drive USD/CAD lower. It is certainly notable that the close relationship between the two has wavered somewhat of late, with the late-October pop in USDCAD occurring in the face of rising energy prices. Nonetheless, that correlation appears to have kicked in once again over recent weeks.

WTIUSDCAD51222.PNGSource: TradingView

Where now for USDCAD?

USDCAD has been on the back foot over the course of the past two-months, with price dropping into a confluence of the 100-day SMA and 61.8% Fibonacci support level. The uptrend dominant over the course of this year does bring expectations of another move higher before long. With that in mind, another rise looks likely before long. A swift end to the monetary tightening phase from the Bank of Canada could bring greater upside as the Fed continue to raise rates.

USDCAD-Daily-2022_12_05-14h48.pngSource: ProRealTime
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      21,250
    • Total Posts
      90,856
    • Total Members
      41,351
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    Aliashiq
    Joined 03/02/23 17:38
  • Posts

    • Hello, Is any interest paid on "available" cash (not "margin") in a spread betting account? For example, if I held £10k in an account and had no open positions. The reason for asking is that I understand that proceeds from short sales in a CFD will receive interest (benchmark-2.5%), so was wondering if that applied to all cash, and couldn't find an answer on the web site.   Thanks.
    • Hi @Mark12 If you are trading shares, you will have the option to place a limit order to sell your existing position. When the market opens, please check if your order level is close to where the market is trading. All the best, OfentseIG
    • We have to wait until Friday to find out if the UK economy skirted a recession.   Richard Snow, foreign exchange analyst at Daily FX, tells IGTV’s Jeremy Naylor that after the third quarter contraction of 0.3%, there is a risk around the incoming data for the fourth quarter. Here he discusses GBP/USD as a trade to go short. But what if GDP comes in slightly higher? Richard says that is likely to be largely academic and that he believes the short trade will prevail. Jeremy Naylor | Writer, London | Publication date: Friday 03 February 2023
×
×
  • Create New...