USDCAD Loonie a loser as Bank of Canada cites supply chain risks

USD/CAD: Loonie a loser as Bank of Canada cites supply chain risks

Back in July, the Bank of Canada (BOC) tapered its weekly asset purchases from CAD $2B to $3B in a small step toward “normalizing” monetary policy…and since then, just about everything has gone poorly for the Canadian economy.

On the growth front, last week’s Q2 GDP report fell -1.1% annualized, far below the +2.5% rate expected, and the preliminary estimate for July GDP came in a -0.4%. Meanwhile, COVID’s delta variant is spreading throughout the country and its major trading partners, casting a pall over near-term economic prospects. At the same time, polls for the country’s federal election in two weeks’ time have tightened dramatically, layering on an element of political uncertainty to business and consumer outlooks.

So against that backdrop, it’s not surprising that the BOC left monetary policy unchanged in today’s meeting with interest rates steady at 0.25% and CAD $2B of QE per week, as widely expected. Notably, the central bank only released a statement with this meeting; there was no press conference with BOC Governor Tiff Macklem (though he does have a separate speech tomorrow that bares watching).

In the monetary policy statement, Macklem and company struck a relatively balanced tone, indicating that they still expect a strong recovery heading into Q3 for both the Canadian and global economy, but warning about supply chain and pandemic-related risks. The BOC left its guidance entirely unchanged from last month, noting that the economy “still has considerable excess capacity” that merits ongoing “extraordinary monetary support.”

After the run of weak data over the last month, the BOC’s monetary policy statement confirmed the risks to the global economy, especially for export-dependent, growth-sensitive currencies like the Canadian dollar. Not surprisingly, we’ve seen the loonie extend this week’s selloff on the release, with USD/CAD rising by about 100 pips for the second consecutive day. Looking ahead, the North American pairing could certainly have more room to rally in the near-term, with little in the way of previous resistance until closer to 1.2900. At the same time, any near-term dips could find support in the mid-1.2500s, where the 50- and 100-day EMAs converge. Only a break below that support zone would flip the near-term bias back in favor of the bears.

Source: TradingView, StoneX

How to trade with City Index

You can trade easily trade with City Index by using these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.