Could the Bank of Canada tilt hawkish?

Forex 4 minutes to read

Michael O’Neill

FX Trader, Loonieviews.net

Summary:  Could the BoC make a hawkish turn on robust macro data?


The Bank of Canada monetary policy statement is set for release tomorrow at 14:00 GMT. No one expects any change in the overnight rate (currently 1.75%), and most believe Wednesday’s policy statement should mirror its April 24 predecessor. 

At that time, the BoC wrote “onngoing uncertainty related to trade conflicts has undermined business sentiment and activity, contributing to a synchronous slowdown across many countries". Since then, trade uncertainty has risen. China and the US are trading accusations about who reneged on which draft agreement terms first. Brexit has turned Britain’s traditional “stiff upper lip” stoicism into a drooling, gum-flapping mess. 

The risk/reward favours a short USDCAD position. FX traders expect an unchanged, somewhat dovish statement which suggests limited topside gains if they are correct. However, a slightly hawkish BoC statement cannot be ruled out. Recent economic data, including March GDP and April employment, support the BoC view of growth rebounding in the second quarter. The US/Canada trade picture has improved. US tariffs on imports of Canadian steel and aluminium have been repealed, and the Canadian government has taken the first steps to ratify the United States Mexico Canada Agreement on trade. There isn’t a press conference following Wednesday’s statement, but Senior Deputy Governor Carolyn Wilkins will deliver an economic progress report Thursday.

China accused the US of reneging on draft agreements first, contradicting Washington's claim and lifting the three main indices in early trading. The Dow Jones Industrial Average is up 0.39%, S&P 500, 0.38%, and the Nasdaq gained 0.57% as of 14:00 GMT. Mildly better Case-Shiller Home Price data helped sentiment, as did the news of the merger talks between Renault and Fiat Chrysler.
USDCAD (hourly, source: Saxo Bank)
USDCAD (hourly, source: Saxo Bank)

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.