Geopolitics & Financial institution of Canada to Set the Tone for USD/CAD

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  • Geopolitical tensions will proceed to dominate near-term value motion
  • If the disaster in Japanese Europe subsides and sentiment improves, high-beta currencies such because the Canadian dollar may strengthen
  • The Financial institution of Canada’s rate of interest choice may additionally increase the loonie, pushing USD/CAD decrease

Most learn: US Dollar Price Action Setups – EUR/USD, GBP/USD, AUD/USD, USD/CAD

USD/CAD has been on a curler coaster trip in current days amid heightened geopolitical tensions in Japanese Europe after Russia launched a navy operation and commenced an unprovoked invasion of Ukraine. In opposition to this backdrop, the pair briefly climbed to a two-month excessive of 1.2878 on Thursday earlier than settling round 1.2735 forward of the weekend.

Though oil prices have surged this year, with the West Texas Intermediate mix up 5% in February and up over 22% in 2022, the Canadian greenback (loonie) has been unable to reap the benefits of the scenario, as excessive volatility and risk-averse sentiment have restricted the enchantment of high-beta currencies whereas boosting demand for safe-haven assets.

Nevertheless, the scenario may change within the coming days if the battle between Ukraine and Russia eases. It’s too early to inform how the disaster will unfold, however on Friday Moscow signaled a willingness to renew talks with the Ukrainian authorities, an indication that there’s nonetheless an opportunity for diplomacy. Ought to hostilities abate, the Canadian greenback is well-placed to command power within the close to time period, helped partially by improved phrases of commerce from larger commodity costs.

On the similar time, Financial institution of Canada may speed up USD/CAD’s reversal decrease within the days forward if it delivers a hawkish rate of interest hike on Wednesday when its March financial coverage assembly concludes. That stated, the financial institution is predicted to lift borrowing prices by 25 foundation factors to 0.50% to sort out red-hot inflation, which hit a three-decade excessive of 5.1% y/y in January, greater than twice above the two% mid-point goal. On condition that the transfer has been absolutely discounted, merchants ought to give attention to the language and ahead steering within the assertion.

With general financial slack absorbed in Canada, sturdy employment development and mounting value pressures, BoC may counsel that the tightening cycle shall be forceful, setting the stage for a number of hikes within the coming quarters. Buyers at present see 4 rate of interest will increase in 2022, however the normalization path may reprice larger if policymakers take a more durable stance amid upside inflation dangers. This state of affairs creates a bullish bias for the CAD.


From a technical perspective, if USD/CAD extends Friday’s downswing and breaks beneath assist close to the 1.2700 psychological stage, sellers may very well be emboldened to drive the alternate charge in the direction of 1.2600, the 38.2% Fibonacci retracement of final 12 months’s June/December rally.

On the flip aspect, if bulls reemerge and regain management of the market, resistance lies at 1.2878, Thursday’s swing excessive. If costs push larger and overtake this barrier, bullish impetus may strengthen, paving the way in which for a retest of 2021’s excessive.


Canadian Dollar Forecast: Geopolitics & Bank of Canada to Set the Tone for USD/CAD

USD/CAD chart prepared using TradingView


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—Written by Diego Colman, Contributor

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