To be fair, the entire FX market has been limp this week.
That could change in the day ahead with several highlights on the calendar including:
- Australian Q4 GDP
- Eurozone Q4 GDP (second reading)
- ADP employment
The Canadian dollar has been struggling to find a theme. Until recently, better US economic data has supported the loonie but that is no longer the case as the US dollar reaps the benefits.
The main risk with the Bank of Canada decision is that Carney removes the tightening bias in the statement, denoted by the line “some modest withdrawal of monetary policy stimulus will likely be required over time.”
The January statement noted that inflation was below BOC expectations and at his most-recent appearance, Carney said recent Canadian data has been “breaking to the downside“.
Slower growth and lower inflation means there is a possibility (I’d say 20%) that the BOC could remove the tightening bias. My expectation is they will preserve a hawkish bias in case domestic growth falters further while noting downside risks to growth.
Such a scenario is neutral for USD/CAD but the risks are skewed to the upside and the technicals point to a test of the June high at 1.0447.
USDCAD daily chart
