Waits on BoC rate decision :: InvestMacro

• BoC decision & Fed speeches/Beige book in focus

• Trader’s see 88% probability of BoC 50bp cut on Wednesday.

• Over past year BoC decision triggered moves of ↑ 0.3% & ↓ 0.2%

• Bloomberg FX model – 80% – (1.3719 – 1.3940)

• Technical levels – 1.3880 and 1.3750

The USDCAD has rallied over 2.2% this month, recently touching its highest level since early August 2024.

Prices are certainly bullish with the upside powered by a broadly stronger dollar. This can be seen in the Canadian Dollar’s performance against other G10 currencies month-to-date.

More volatility could be on the cards this week due to the incoming BoC rate decision and speeches by numerous Fed officials.

Taking a quick look at the technical picture, prices are approaching weekly resistance at 1.3880. However, the Relative Strength Index (RSI) is approaching 70 – signalling that prices may be overbought.

Here are 3 reasons why the USDCAD could see big price swings:

 

    1) Bank of Canada rate decision

The Bank of Canada is expected to move ahead with a jumbo 50 bp rate cut on Wednesday.

In fact, traders are currently pricing in an 88% probability that rates will be cut by 50 basis points. Traders are also pricing in a 33% probability of another 50 bp cut by December!

However, the downside surprise in September’s inflation report could prompt the BoC to opt for a 25bp move instead. Inflation in Canada fell to 1.6% in September from 2% in the previous month – the lowest since February 2021.

Golden nugget: Over the past 12 months, the BoC rate decision has triggered upside moves as much as 0.3% or declines of 0.2 % in the 6 hours after the data release.

• Should the BoC move ahead with a 50bp cut and signal further cuts down the road, this may weaken the CAD. Such could propel prices toward 1.3880 and 1.3940 – the upper limit of Bloomberg’s FX model.

• A less dovish than expected BoC may boost the Canadian Dollar. This could trigger a selloff toward 1.3720.

 

   2) Fed speeches & Beige book

A host of Fed speeches this week may provide fresh insight into the Fed’s stance on future policy moves.  It will also be wise to keep an eye on the Fed’s Beige book published on Wednesday 23rd October which could provide insight into the health of the US economy.

Traders are currently pricing in a 90% probability of a 25-basis point cut by November and 60% probability of another cut by December.

Any major shifts to these expectations could translate to dollar volatility, influencing the USDCAD as a result.

 

    3) Technical forces

The USDCAD is firmly bullish on the daily charts as there have been consistently higher highs and higher lows. However, the Relative Strength Index (RSI) in the daily timeframe is touching 70 -signalling that prices are heavily overbought.

• If the upside momentum holds, this may push prices towards 1.3880 and 1.3940.

• If bears return to the scene, this may drag prices toward 1.3750 and 1.3720.

According to Bloomberg’s FX forecast model, there’s an 80% chance that USDCAD will trade within the 1.3719 – 1.3940 range over the next one week.