Is the Bank of Canada Turning Dovish Towards its Interest Rate Outlook?
???? Fundamentals
Many traders and analysts seem nearly unanimous in their belief that the Bank of Canada (BOC) will announce it will keep its benchmark rate steady at 1% after this morning’s central bank meeting, as weak economic growth rates (+0.6 annualized growth rate in Q4) and less than stellar economic data may portend that monetary policy will remain “accommodative” throughout 2013. What is still in debate is whether the BOC will finally loosen the current “tightening bias” that was seen in prior policy statements.
Some traders are beginning to price-in a more “accommodative” stance by the BOC, as the value of the Canadian Dollar (CAD) has fallen nearly 5 cents vs. the U.S. Dollar and is now trading at a discount to its neighbor to the south. Dovish comments from BOC Governor Mark Carney last month may be leading market participants to view a potential switch in thought process by the Central Bank, as it appears that policymakers see the need to raise interest rates soon as less urgent.
Some traders of the “Loonie” may wish to follow the trend of economic data out of China, Canada’s third largest export destination behind the U.S. and U.K., as any signs of a significant change in the economic growth rate of the world’s most populous nation could alter the volume of commodity exports from Canada and trigger either stronger economic growth and potentially higher interest rates should exports increase, which would be generally supportive for the value of the CAD, or much slower growth and potentially lower interest rates, which would be generally a negative factor on the value of the “Loonie”.
???? Technical Notes
Looking at the daily continuation chart for Canadian Dollar futures, we notice that once prices traded below the uptrend line drawn from the June 2012 low, it signaled the end of the recent up-move for the Canadian Dollar, with only minor upward corrections since that time being stymied by the 20-day moving average (MA).
The 14-day RSI continues to linger at oversold levels, with a current reading of 28.21. The most recent downward price movement seems to have found some support below 0.9700, as many weak longs appear to have exited their positions ahead of the BOC interest rate announcement. Support is seen at the March 1st low of 0.9665, with resistance seen at the 20-day MA currently near the 1.0042 price level.
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