The USDCAD was able to touch below the 1.3500 price level for the first time since March 2020. The Loonie has had a lot going for it lately. The bounce in crude oil price from near-zero levels after the OPEC + production cuts of April has pushed the oil-linked currency back from some of the weakest values it has had against the USD in years. At the same time, the US Dollar is struggling as riots on the domestic front as well as renewed tensions with China on the international front plague the greenback.
The USDCAD will be in focus again tomorrow as the Bank of Canada (BoC) meets to decide interest rates. Tomorrow will also see a change of guard at the head of the institution, as Governor Poloz gives way to the new Governor Tiff Macklem.
Most polled economists see the BoC leaving the policy rate unchanged at 0.25%. Goldman Sachs has set a 3-month price target for the USDCAD at 1.40, while Rabobank has set a 3-month goal of 1.42. How will tomorrow’s decision affect the pair in the short-term?
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Outlook for USDCAD
The new Governor is not expected to face press scrutiny at this time. Traders need to watch the accompanying statement for any discussions on the possible introduction of negative interest rates.
If there is a mention of the BoC considering a sub-zero rate regime, this could be bearish for the CAD. The Fed has resoundingly rejected this idea, so any mention of sub-zero rates by the BoC introduces a divergence in policy which could play out on the charts tomorrow. If this is the case, the USDCAD could claw back on the losses of the last three days, targeting 1.3549, 1.36961 and 1.3762 as the possible upside targets.
Factors that would promote CAD strength include a mention of additional purchase of bond instruments, as well as any news of an extension of the OPEC + crude oil output cuts till September at the earliest. This would allow the USDCAD to fill the price gap of March 9 on the daily chart, with 1.34656 and 1.33821 being the immediate downside targets. We could also see 1.33487 and 1.32974 becoming relevant if the price decline continues.
Traders with a medium-term outlook should also watch out for the employment data from both countries on Friday as well as the news headlines from the OPEC + online meeting starting June 4.
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