You don’t fight a central bank but what do you do when two central banks are fighting each other?
Washington DC and Ottawa are less than 1000 km away but the outlooks from the central bank leaders are radically different.
From his seat in Canada, Poloz sees a recovering US economy that will power Canadian growth. Yesterday, he delivered an incredibly optimistic speech, saying the Canadian economy is near a tipping point.
From the belly of the Washington beast, Bernanke called off the taper because of disappointing growth. An admission that the new normal is muddling, 2% growth.
The thing is, this is the perfect outcome for USD/CAD bears. If Bernanke is right, they will print forever and devalue the US dollar. If Poloz is right, the Canadian economy will take off and the loonie will benefit.
USD/CAD is a touch higher today but let’s keep it in perspective — it’s fallen in a straight line since the start of the month. The pair is testing uptrend support and the 200-day moving average.
USDCAD daily chart
Next, I expect to see some consolidation and a bounce to 1.03 from this pair before it breaks down further.