USD/CAD dips back from session highs in 1.2660s to flat with traders reluctant to sell loonie pre-BoC By Frank_Macro USDCAD BOC
ading ranges. The loonie and other risk-sensitive currencies remain highly sensitive to US equity market. Major US indices have been taking a beating heading into Wednesday’s Fed policy meeting, where the bank is expected to give the green light for as many as four rate hikes in 2022 and also the start of quantitative tightening. After recovering a more than 4.0% drop on Monday, the S&P 500 is reeling again on Tuesday and is down about 1.
At current levels in the 1.2630s, USD/CAD trades flat on the day, with the loonie holding up better versus the buck than the likes of the euro, Swiss franc, New Zealand dollar and Scandinavian currencies. Traders may be reluctant to sell CAD ahead of Wednesday’srate decision, where there appears to be an outside chance that the central bank surprises market participants with a 25bps rate hike. In a recent Bloomberg poll, seven out of 31 participants said they think the BoC will hike this week.
But last week’s hot Consumer Price Inflation report and strong quarterly Business Outlook Survey, which pointed to strong growth, high inflationary pressures and a tight labour market, all suggest a hawkish tweak to guidance is coming. In other words, it seems very likely that if the BoC doesn’t go with an outright rate hike on Wednesday, they will at the very least signal that a hike could be coming as soon as March.
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