The Canadian dollar has had an uneventful week, even though there was plenty of buzz in the financial markets over the BoC decision to end its stimulus programme. USD/CAD is currently trading at 1.2337, down 0.07%.
Canada wraps up the week with GDP for September. After a soft reading of -0.1% (MoM) in August, GDP is expected to rebound with a gain of 0.7%. The economy is projected to expand by 5.0% in 2021, which indicates robust growth.
The highlight of the week was the surprise announcement by the Bank of Canada that it was terminating its stimulus programme (QE). The stimulus was extended during the Covid pandemic, but the bank has been scaling back QE as the Covid has slowly been contained. The dramatic move caught the markets off guard, as the investors were widely expecting that the bank would scale back QE to CAD 1 billion, down from CAD 2 billion. The BoC’s move was more hawkish than anticipated, but the Canadian dollar managed only limited gains.
The BoC went one step further as BoC Governor Tiff Macklem said after the meeting that, “we will be considering raising interest rates sooner than we previously thought”. In his rate statement, Macklem reiterated that the bank would not raise rates before the recovery was complete, which was projected to occur in the “middle quarters” of 2022. Prior to this week’s meeting, the BoC had signalled that it expected to raise rates in the H2 of 2022.
In the US, GDP was softer than expected, adding to the dollar’s woes. Advance GDP for the third quarter disappointed with a gain of 2.0% (QoQ), shy of the consensus of 2.7% and much weaker than the Q2 reading of 6.7%. Still, the slowdown in the US economy is unlikely to cause a change of heart for the FOMC, which is widely expected to announce a taper at the policy meeting on November 2nd.
- There is support at 1.2302. Below, there is support at 1.2235
- There is resistance at 1.2422, followed by 1.2475
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