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USD/CAD Quadruple Top Ahead Of BoC Rate Decision

By Kathy LienForexDec 07, 2021 08:53PM ET
www.investing.com/analysis/usdcad-quadruple-top-ahead-of-boc-rate-decision-200610811
USD/CAD Quadruple Top Ahead Of BoC Rate Decision
By Kathy Lien   |  Dec 07, 2021 08:53PM ET
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There is a very clear quadruple top pattern in USD/CAD from 1.2850. Investors have been snapping up Canadian dollars ahead of Wednesday’s monetary policy announcement. The Bank of Canada is widely expected to leave interest rates unchanged, but given consistently positive data, it will reaffirm plans to raise interest rates early next year. When the BoC last met in October, it surprised the market by ending Quantitative Easing suddenly and advanced its forecast for a rate hike from the second half to the second quarter of 2022. Since then, the economy continues to recover from earlier restrictions. Job growth blew past estimates in November with more than 153,000 workers finding new employment. The labor market is not only back to pre-pandemic levels but the economy is at full employment. As indicated by today’s IVEY PMI report, manufacturing activity is up and most importantly, inflation is growing at its fastest pace since 2003.  
 
At this pace, the Bank of Canada can no longer justify the current level of policy accommodation. The market is pricing in anywhere between four to five rate hikes by the BoC next year. With the latest numbers, it would not be out of the question for the central bank to suggest that rates could be increased sooner – the RBNZ surprised with a quarter point hike in October. Omicron could hold the central bank back, but very early signs show that while fast moving, this variant may be less severe than other forms of the virus, which explains why stocks have recovered nearly all of its Omicron losses. If the Bank of Canada emphasizes the high level of inflation and brings forward tightening plans, USD/CAD could extend its slide down to 1.26. 
 
Monetary policy announcements can have a significant impact on currencies. The best performing currency today was the Australian dollar, which rose more than 0.8% after the Reserve Bank left monetary policy unchanged. According to RBA Governor Philip Lowe, “The emergence of the Omicron strain is a new source of uncertainty, but it is not expected to derail the recovery." The economy is expected to return to its pre-Delta path in the first half of 2022. By downplaying Omicron risk, the RBA has fuelled expectations for an earlier rate rise. Having sold off steadily since late October, this is the strongest two-day rally we’ve seen in AUD/USD in six weeks. The New Zealand dollar followed the Australian dollar higher. 
 
In contrast to the commodity currencies, the euro and sterling sold off against the U.S. dollar today. Although the German ZEW survey was not as weak as anticipated – the economic sentiment index dropped to 29.9 instead of 25.1, the current conditions component turned negative for the first time since June. With virus cases on the rise and Omicron spooking some nations back into lockdown, investors expect activity and sentiment to deteriorate further.    
USD/CAD Quadruple Top Ahead Of BoC Rate Decision
 

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USD/CAD Quadruple Top Ahead Of BoC Rate Decision

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Comments (9)
Nicolas Duran
Nicolas Duran Dec 09, 2021 8:34AM ET
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Where’s my job Canada?
Shah Sher
Shah Sher Dec 08, 2021 9:52AM ET
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I have no jobs you help you sand me many 80,000 you help me OK ۔
Boby Paliya
Boby Paliya Dec 08, 2021 9:52AM ET
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hello dear please help me i need job you
Shah Sher
Shah Sher Dec 08, 2021 9:52AM ET
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I have no jobs you help you sand me many 80,000 you help me OK ۔
Shah Sher
Shah Sher Dec 08, 2021 9:48AM ET
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Good night
Ngo ngo
Ngo ngo Dec 08, 2021 8:02AM ET
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i will like to follow all this program's thanks very much I'm new
STEVE JACKSON
STEVE JACKSON Dec 08, 2021 6:38AM ET
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Good Article Thanks.
Brens Isabel
Brens Isabel Dec 07, 2021 10:09PM ET
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hola como estas kathy
William Bailey
William Bailey Dec 07, 2021 9:56PM ET
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Looks like taking away free money from investment helps the surfs…
David Vaughan
David Vaughan Dec 07, 2021 9:39PM ET
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Great article. The US should follow suit now that Omicron has proven less severe
By designe
Bydesigne Dec 07, 2021 9:39PM ET
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It really hasn't been proven, the infection rate is very small. Comparing the affects of omicron in South Africa to the US is probably not the best measure, being that americans are substantially less healthy that south Africans.( diabetes, obesity, blood pressure, heart disease.) The stock dump at start of omicron news was a knee jerk reaction and little to do with actual impact of it. It will take till March-May to find out the real impact.
 
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