Canadian Dollar Outlook Hinges on Inflation, BOC Rate Cut Odds

As previously mentioned, the US dollar was sent on a roller coaster ride in response to the recent FOMC decision and Powell press conference. It is the pace to close at low session levels judging by the performance in the DXY Index a common reference basket of the major USD currency pairs. Forex News and alerts from around the world The US dollar ripped off then plunged during Wednesday’s trading session, as forex traders digested conflicting Fed TheOctober meeting messages. The Canadian dollar paused its earnings as the Bank rate decision of Canada had something for everyone. It will probably take the spotlight during Wednesday’s trading session in light of the risk of high-impact event surrounding the Loonie. The sliding Canadian dollar, already down 16 percent last year, is likely to deliver a hammer blow to the already-failing consumer confidence and trigger a wave of price increases on a wide range of imported goods and services, Porter and Reitzes of BMO warned.

The central bankers were notorious building blocks for the formisinterpretingthe aggressive inflation and the looks of the Canadian central bank to be posed in asimilarfashion. The bank had recently been indicating that a rise in interest rates in May was likely, so Carney, instead of being vague about the possibility of a rate hike in May was a dovish change. In a stark contrast to most major central banks, the Bank of Canada has left its interest rate unchanged, despite dovish actions and recently revealed guidelines from the Fed, among others. He has not raised rates in almost seven years. According to the press release accompanying the July BOC interest rate decision, the central bank of Canada stated that the Governing Council will continue to monitor incoming data and pay particular attention to developments in the energy sector and the impact of trade conflicts on the Canada’s growth prospects and inflation. Canada’s commercial banks failed to match last week’s central bank’s 25-point rate-cutting rate, with the six largest lenders lowering their loan rate first by 15 basis points.

Alas, the imminent release of Canadian inflation could cause a protracted selloff in the Canadian dollar, if inflation collapses. Bank officials seem relatively indifferent that inflation has moved lower in recent months and now sits well below the bank’s 2-per-cent target. A top Bank of Canada official says economic growth has spread to most regions and industries in Canada the latest clue that the central bank is considering when to start raising interest rates.

Canadian inflation and retail inflation on Friday are likely to influence market speculation on how soon the Bank of Canada (BoC) could hike Canadian interest rates again. Unlike other central banks whose economies may be in worse conditions, the BoC does not need to be overly proactive they can wait and see how the economy class tariffs worldwide before acting. Domestic economy doing well, but exports are the problem If we looked at the Canadian economy exclusively, it can easily be argued that the country is on the road to recovery.

Trading involves risks, including the possible loss of capital and other losses, and past performance is not indicative of future results. For more information on market positioning and bullish or bearish bias, traders can turn to the Sent Sentimentdata client, which is updated in real time and covers various currency pairs, commodities and stock indices. RESTORE DOLLAR RISK Canadian (overnight) broadly speaking, forex trader options appear to have a bearish bias toward CAD price action ahead of the Canadian dollar-based inflation report overnight Canadian risk reversal readings.

The Canadians report inflation issues to Loonie forex traders mainly due to the fact that it stands to weigh on market expectations for a cut in future BOC interest rates. It is generally desirable in a healthy market to see a high-low spread of at least 20 points, which indicates that investors have clear preferences in stocks that they want to hold, rather than all the boats-raised-in-a-rise mentality – tide that dominated 2013. Again, it is generally desirable in a healthy market to see a high-low spread of at least 20 points.

Inherently, then, while market rates are strongly backed by rate cuts now, it also seems that there is a significant risk of back biasing the Fed’s swing towards hawk very quickly if a US-China trade agreement materializes. The labor market and prime rates are the key ingredients for the central bank, said Terry Carr, head of Canadian fixed income at Toronto’s Manulife Asset Management Ltd., which oversees about $ 22 billion in Canada fixed-income assets. A irregular labor market and reluctance among lenders to reduce prime rates are adding forecasts for continued low oil prices to stimulate bets the Bank of Canada will cut its financial burdens again in March. Canadian consumers are already carrying record levels of debt, it is noted.