The coming day is a big one for the Canadian Dollar with the Bank of Canada (BoC) meeting to set interest rates and a speech by BoC Governor Steven Poloz. Technicals suggest the pair is bullish, but a change in tone from the BoC’s top man could force a bearish breakout.
The current tone of the Bank of Canada and its Governor Steven Poloz has been ultra-neutral when it comes to interest rates. Inflation has been a little higher than it would like, but has pulled back nicely to the 2% target rate. On the other hand, GDP has been sluggish but the Ivey PMI has been strong lately. This will please the BoC and the likelihood is they will keep interest rates steady at 1.00%.
The Ivey PMI result at the beginning of October took the market by surprise as it returned 58.6, up from 50.9 and well ahead of the 52.8 the market had anticipated. Wholesale sales were released on Monday and showed 0.2% growth, up from -0.3%.
Canadian Core retail sales are due at the same time as the interest rate decision and are expected to rise from -0.6% to 0.3%.It would pay to keep an eye on the US data due out today as well. US Core CPI figures are due to be released at the same time at the Canadian interest rate decision. If it rises from 0.0% to 0.1% as the market expects, it will add bullish sentiment to the pair.
The tone of Governor Poloz in his speech after the rate decision will be key and the market will go over every word with a fine tooth comb. If there is any hint that he is becoming more hawkish because of the improving growth rate, the USDCAD pair will take the brunt and the bullish trend will be compromised. The reality is that he will probably maintain his ultra-neutral stance and reiterate that inflationary pressures are balanced.
In which case the trend line and the support at the current level of 1.1217 are likely to hold. The Stochastic Oscillator is just touching oversold conditions, so there is plenty of room for this pair to move higher. Further support can be found at 1.1178 and 1.1133, but these are only likely to be tested if this pair breaks out. A bounce off the trend line and a movement higher is likely to find resistance at 1.1263, 1.1289 and 1.1328 with 1.1289 looking the most solid of the three.
The USD/CAD pair has found support at the current level ahead of the Canadian interest rate decision. If the sentiment from the BoC and its Governor remains ultra-neutral, we should see the bullish trend line hold.