BoC Meets With Election In Background


The Canadian dollar is slightly lower in the Monday session. Currently, is trading at 1.2552, up 0.23% on the day. Financial markets are closed in both Canada and the US, so the pair is likely to have a quiet day.

After weeks of the Federal Reserve basking in the market spotlight, it’s the turn of other central banks this week, including the Bank of Canada, which holds a policy meeting on Wednesday.

BOC in the spotlight

The is already on the path of policy normalization, having tapered its weekly bond purchases from CAD$5 billion to CAD$2 billion. The Bank had projected that it would raise interest rates in the second half of 2022, when was expected to rise to the 2% level. However, there are two factors that could support an uneventful September meeting. First, the Q2 reading underperformed, with a reading of -1.1% (2.5% exp.), and Covid-19 cases have been rising. The Bank may not want to signal that further tightening is on the way, with economic conditions not all that favorable. Second, a national election is being held on Sept.20, and the BoC will scrupulously want to avoid taking any steps that could have an impact on the election.

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At the same time, there are some key economic indicators that can be relied on to make a case for further tapering. Inflation has climbed to 4%, double the BoC’s target, while employment has almost completely recovered from the dark days of April 2020, when Covid-19 appeared and severely curtailed the labor market. A signal from the Bank that further tapering is on the way could give a significant boost to the Canadian dollar.

Massive miss for US nonfarm payrolls

US surprised with a huge miss on Friday, as the economy added only 235 thousand jobs in August. The consensus was around 750 thousand jobs and some forecasts were above the 1-million level.

The Fed has consistently said that a taper was dependent on stronger employment data, so the soft NFP release makes it very unlikely that the Fed will signal a taper at the next policy meeting on September 22nd. This is a bearish development for the US dollar, which could be in for a rough ride this week. The Canadian dollar has jumped 2.1% in the past two weeks, and the rally could continue when US and Canadian markets reopen on Tuesday.

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USD/CAD Technical

USD/CAD Daily Chart
  • There are resistance lines at 1.2776 and 1.2936
  • The next support levels are at 1.2517 and 1.2418

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