BOC recap No taper but watch for catalysts on Thursday

BOC recap: No taper…but watch for catalysts on Thursday!

The Bank of Canada left rates unchanged today at 0.25% as expected. In addition, they also left bond buying purchases unchanged at C$3 billion per week. In other words, they did not decrease the amount of bonds are currently buying per week. At their meeting on April 21^st, the BOC cut their bond buying from C$4 billion/week to C$3 billion/week. As we discussed in our BOC preview, the reason the BOC did not choose to taper was twofold:

Two consecutive months of weaker than expected employment data since their last meeting on April 21st
Canada is still not fully reopened after a third wave of coronavirus cases

Having said that, the BOC left guidance unchanged on policy and inflation. They will continue to provide extraordinary monetary policy until their inflation target of 2% is sustainably achieved. However, current expectations are that the BOC will taper at the July meeting.

Everything you wanted to know about the Bank of Canada

Deputy Governor Timothy Lane will be speaking on Thursday on the digital transformation and Canada’s economic resistance. The text will be available at 1:00pm ET and a press conference will begin at 2:20pm, with Q&A. Watch for any hints from the Deputy Governor as to if the BOC will be ready to taper come July.

USD/CAD had sold off into the BOC statement earlier today, however, went bid immediately following the release. This indicates that traders were hoping to get a head start on a BOC “taper” and covered shorts when there was “no taper”. However, given the range on the day in USD/CAD, neither the bulls nor the beats could push the pair out of this week’s tight range between 1.2057 and 1.2118.

Source: Tradingview, City Index

We have been monitoring the current trading range since the beginning of May for USD/CAD between 1.2006 and 1.2203. Price has been in a descending triangle since May 13^th and has tested the 1.2000 psychological support level several times. The expectation from a descending triangle is that price will break lower it nears the apex. However, after today’s BOC statement, price moved higher, above the top downward sloping trendline. 1.2250 provides the first level of resistance for the pair. If price breaks above, horizontal resistance crosses near 1.2365, just ahead of the long-term downward sloping trendline of a bearish wedge comes into play near 1.2400. If price pulls back into the range, first support is at this week’s lows of 1.2057 ahead of the recent lows at 1.2006/1.2000. Below there, USD/CAD could fall to the April 2017 lows near 1.1917. The price target for the previously mentioned descending triangle is near 1.1840.

Source: Tradingview City Index

Also note that while Crude Oil has been trending higher since May 21^st, USD/CAD has been moving sideways. WTI futures pushed above $70 today and pulled back. If Crude oil does continue to pullback under $70, USD/CAD may go bid.

Source: Tradingview, City Index

What factors move the price of oil?

Although the BOC meeting has passed, there are still catalysts which could cause USD/CAD some volatility. BOC’s Lane speaks tomorrow, and crude oil could move lower under $70. In addition, the US releases CPI in the morning, which could give the USD a jolt. Keep an eye on USD/CAD for possible volatility tomorrow.

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