The Bank of Canada (BOC) monetary policy meeting tomorrow is the first one in the new year, and the Canadian Dollar (CAD) traders are ready for some wild market moves. Also called the “loonie dollar,” the CAD is one of the currencies that gained the most against the US dollar in the year that just ended.
Since the price of oil recovered from negative territory, the CAD gained significantly. It rose not only against the USD but also against the Euro – another currency that strengthened for most of 2020.
Let’s have a look at some key CAD pairs and what the BOC decision tomorrow may bring.
Bank of Canada Expected to Keep the Monetary Policy Unchanged
The BOC is expected to keep the overnight rate unchanged at 0.25%. Therefore, traders will focus on the BOC press conference that follows one hour after the monetary policy report and the rate statement are released.
The press conference is the event where traders will look for clues about what the bank plans ahead. The so-called forward guidance from the BOC. Yet, tomorrow it may be that traders will have an eye on other events that may move the Canadian pairs. One of them is the inauguration of the new President of the United States – more important for the USDCAD pair on a day when the Bank of Canada is expected to keep the policy on hold.
For the USDCAD, after the price of oil recovered from negative levels, there were little or no bounces. It dropped from 1.46 to 1.26, a whopping two thousand pips on the back of a weak dollar and a very strong CAD.
The 1.30 level acted as a pivotal one for the pair for a long time. Should the BOC sound dovish during the press conference, the USDCAD bounce might reach 1.30.
This is the ECB – European Central Bank – week, and the EURCAD pair ended the previous week on its knees. The pair almost reached 1.60 in July 2020, formed a double top, and fell more than six hundred pips ever since. The CAD gaining against the EUR, one of the strongest currencies on the FX dashboard, was one of the surprises during the second half of last year and the start of the new one.
This is one of the most volatile cross pairs on the FX dashboard. Together with higher volatility, it also has a bigger spread when compared to other crosses. Tomorrow’s BOC decision and press conference is followed by Bank of England’s Bailey speech at the virtual Citizen’s Panel Open Forum hosted by the Bank of England. Because questions from the audience are expected, the cross pair may disregard the BOC message and focus on what the Bank of England’s guidance is.