18 July 2014

Trading USDCAD ahead of CPI release?

​USDCAD yo-yoing ahead of key CPI release as Bank of Canada moves to stem currency gains.
​​​​​​The Bank of Canada yesterday kept the base interest rate for Canada firmly on hold at 1% which was widely expected. However, the central bank did admit that the achievement of the 2% inflation target earlier than expected was largely due to short-term factors, one of which is a weakening CAD.  

After reaching highs of above 1.1200 in March this year, the USD/CAD exchange rate has slowly trickled back down to January levels. It is the weaker CAD that the Bank of Canada wishes for, and it stands to reason that the currency pair has shown yet another turnaround, met by resistance just above the 1.0600 level and trading currently at 1.0745. Combined with USD strength, the pair may slowly reverse this move downward over the last few months with economic recovery in the country relying on the weaker CAD to boost business investment and demand for Canadian exports. In the short term, the dovish outlook may be the right idea for the Bank of Canada as it looks to stimulate a rise in USD/CAD back towards 1.0900.

What this means for traders 

Ultimately, this up and down nature of the pair leaves the market confused, but it is very clear what intention the Bank of Canada has for CAD. CPI is released tomorrow and expected to rise from 2.3% to 2.4%. It will be impossible to prevent the yo-yoing of USD/CAD if economic recovery should strengthen. As much as a weaker CAD will boost recovery that in turn may strengthen the currency. Let the highs and lows continue.

How will the Canadian dollar trade against the US dollar? Trade USDCAD as spot, forward and as an option today.



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Please ensure you understand the risks.

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The value of your investments can go down as well as up.
Losses can exceed deposits on margin products. Please ensure you understand the risks.