Ahead of the BOC – what’s next for the C$?

The Canadian dollar looks strong ahead of the all-important meeting of the Bank of Canada. What’s next? Here are two opinions:

Here is their view, courtesy of eFXnews:

USD/CAD: Scope For A Move Towards 1.25 If BoC Signals A Second Hike Before Year-End – BTMU

BTMU FX Strategy Research argues that while a rate hike from the BoC this week is largely in the CAD price, market participants will have to watch closely the updated guidance from the BoC for signals over the likely pace of further rate hikes.

“We still see scope for the loonie to strengthen further in the near-term lowering USD/CAD towards the 1.2500-level if the BoC signals that it plans to follow up with a second rate hike relatively quickly before the end of this year.

The BoC could then slow the pace of tightening if inflation fails to pick up as expected in 2018. Low inflation remains a policy concern as highlighted again by weak hourly wage growth which expanded by an annual rate of just 1.0% in June,” BTMU adds.

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Barclays Trade Of The Week: Buy USD/CAD

Currency investors should consider  buying USD/CAD this week via options,  advises Barclays Capital Research in its weekly FX pick.

“In line with our view that the BoC will signal a cautious hike path,  we recommend positioning long USDCAD via a 1×2 call spread,” Barclays advises.

” Weak inflation, low wage growth and the risk of triggering a plunge in the housing market, provide the BOC with plenty of rationale to proceed carefully, in our view.  A dovish tone or signal that the bank does not intend to engage in a full hike path could see USDCAD rally.

In addition, the USDCAD relative strength index (RSI), currently around 30, indicates that  the pair is oversold and momentum to the downside looks stretched,” Barclays says as a rationale behind this call.

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