The BOC meeting splits traders’ expectations

The BOC meeting splits traders’ expectations

2020-01-22 • Updated

The sideways trading of USD/CAD may be finally over after the meeting of the Bank of Canada at 17:00 MT time. While the market expects the interest rate to remain unchanged at 1.75%, there is a possibility that the BOC governor Stephen Poloz surprises us with an unexpected comment in the statement or during the press conference.  If it is dovish, the outcome of the meeting will be just in line with the forecasts of analytical banks which predict the short-term weakness in the Canadian dollar.

But are there actually any reasons for the Canadian central bank to be pessimistic? Let’s find out.

Bears: the positive data is not the case

The robust employment figures released earlier this month showed signs of improvement of the Canadian economy. While the employment level advanced by 35.2 thousand people, the unemployment rate fell to 5.6%.  At the same time, the indicator of the BOC Business outlook survey remains above the zero line at 0.74.

BOC Business Outlook Survey indicator

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Sourced by: the Bank of Canada

Despite these facts, the Canadian dollar keeps being weak since the beginning of 2020, and analysts of TD Securities Inc. and Brown Brothers Harriman give a bearish outlook for the short-term performance of the CAD. They mention the slowdown of the Canadian GDP growth by 0.1% in the previous month as the main factor which may affect the regulator’s decision. Today's lower-than-expected inflation rate (1.7% vs 1.9% expected) may also be mentioned here.

Canada's GDP growth, monthly

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Sourced by: Tradingeconomics

Bulls: got no reason to be sad

According to Bloomberg, the speculators and hedge funds keep being bullish on the CAD. They expect the central bank to continue following the updates on trade especially after the United States-Mexico-Canada Agreement (USMCA) has been finally approved by the US lawmakers.

How to trade on the BOC decision?

All in all, the Bank of Canada definitely has a chance to shake the loonie today.  If the bank indicates no dovish turns, the Canadian dollar may strengthen. In this case, wait for the breakout of 1.3031 on the daily chart of USD/CAD with the following slide towards the 1.2960 level. On the other hand, the negative comment may push the pair above the resistance at 1.3080. The next level will lie at 1.3135.

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