Fresh BOC Rate Cut Expected

The Canadian Dollar is back in focus today as BOC meets for its September rate-setting meeting. The BOC is widely expected to press ahead with a further .25% rate cut, taking headline rates down to 4.25% from 4.5% in line with prior guidance. However, the main focus will be on the guidance issued this time around. With recent data showing that Canadian GDP grew at 2.1% in Q2, marking the highest reading since Q1 2023, the BOC might not feel as compelled to pursue aggressive easing as they were previously. The reading was well above the 1.6% forecast for the period and helps alleviate recessionary fears there.

BOC Guidance in Focus

While Q2 growth data was positive, the fall in oil prices this year is a key concern for BOC, reducing inflows to the Canadian economy. Additionally, lower oil prices mean that inflation is likely to stay weaker, maintaining the need for the BOC to support the economy through continued easing. Last month, CPI was seen falling below estimates following an uptick over the prior month. Against this backdrop, traders will be looking for the BOC today to maintain its easing outlook, signalling the likelihood of further cuts while inflation continues to track lower, keeping CAD under pressure near-term.

Technical Views

USDCAD

The sell off in USDCAD has stalled for now with price reversing higher ahead of testing the 1.3377 level. Price is now fast approaching a retest of the 1.3587 level with the bear trend line just above. This is a key pivot point for the market and while below, focus is on a test of 1.3377 next. Above, focus shifts back to 1.3866 as the next upside level.