New record highs in India’s coronavirus cases have forced the country to impose travel restrictions. This triggered fears of the consumer-driven global recovery waining. The worries weighed on commodity currencies and pushed the USDCAD higher in yesterday’s trading.  Today traders focus on the USDCAD pair as the BOC rates decisions and press conference together with the US crude oil inventories are due today. By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.

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The overnight rate announcement isn’t probably going to provide any surprises as the economists expect the BOC to hold the short-term interest rate unchanged at 0.25 per cent at today’s announcement. The BOC, however, is expected to cut its asset purchases by as much as $1 billion (current level: $4 billion)  as the economic recovery has been stronger than expected. 

This would be likely to strengthen the Currency and is viewed as a risk for the economic recovery by some. However, should the Iran nuclear deal move ahead and sanctions get listed later this year the price of oil would be under pressure due to increased supply. This obviously is a risk factor for the Canadian economy.

Crude oil weakness contributed to the USDCAD rally yesterday as the API data showed an increase in the US crude inventories on a week ending April 16th. Today’s EIA data release is expected to show a 3.7 million barrel decrease in US stockpiles. The weekly data hasn’t seen an increase since March 3rd but this hasn’t stopped the oil price from sliding lower. 

On March 8th we published an analysis (here) saying that the price of crude was more likely to correct lower than move higher. We noted at the time that too many expectations of speedy recovery had been built into the price of oil. The day marked the high in crude oil and the market has corrected significantly lower since then. The blue arrow in the above chart points to the day of our analysis publication.

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The chart above shows the correlation with the CAD and WTI Crude, meaning that the red line on the chart is the CADUSD (USDCAD inverted) currency pair. Since the time of our analysis, the CAD has been as weak as the WTI Crude. Now the Canadian currency is at support (USDCAD is at resistance).

Technically the USDCAD pair has broken outside of a descending price channel and is now below a resistance level (1.2628) created by a previous reactionary high. A break above the 1.2647 swing high would indicate the pair could move to the 61.8% Fibonacci retracement level at 1.2736. The analyst expectation is that paring down of the bond-buying program is likely to be part of the announcement today. If the program is cut by as much as $1 billion, as expected, then the CAD should strengthen and the USDCAD move lower. A violation of 1.2470 would be bearish and indicate a move to 1.2365. 

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Janne Muta
Chief Market Analyst
TIOmarkets.com

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