Will a Bank of Canada taper lift CAD?

The Canadian dollar continues to drift this week. In the Tuesday session, USD/CAD is trading at 1.2532, down 0.02% on the day.

Will the BoC hit the taper button?

All eyes will be on the Bank of Canada policy meeting on Wednesday (14:00 GMT). The bank is expected to maintain interest rates at 0.25%, where they have been pegged since last March, at the start of the Covid-19 pandemic. Any drama will revolve around the bank’s QE programme, with the BoC widely expected to trim weekly government bond purchases from CAD 4 billion to 3 billion.

A trimming of QE would be in response to the economic recovery, which has been faster than anticipated. Some 90% of jobs lost during Covid have been recovered and GDP is expected to climb above pre-pandemic levels in the second quarter.

With the economy clearly moving in the right direction, the cautious BoC will likely respond with a tapering QE, while maintaining interest rates and its accommodative monetary policy. Although a tapering move is expected, the Canadian dollar could gain ground on Wednesday due to the sheer significance of such a move – it would mark the first tightening in policy by any major central bank since the Covid pandemic.

We could also see the Canadian dollar react to the tone of the rate statement. A “less dovish” tone than expected from the bank could improve sentiment towards the Canadian dollar and send the currency to higher ground.

Canada will also release inflation data on Wednesday (12:30 GMT), although these numbers are likely to be overshadowed by the BoC rate decision. Headline inflation is expected to tick higher to 0.6%, up from 0.5%, while Core CPI is expected to fall to 0.0%, down from 0.3%.

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USD/CAD Technical

  • There is support at 1.2446. This is followed by support at 1.2386
  • On the upside, we have resistance levels at 1.2598 and 1.2690

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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