BOC to Stay on Hold

The June Bank of Canada meeting today is the key data focus for currency markets. The BOC was the first of the G7 central banks to take a hawkish shift when it announced a tapering of asset purchases in April along with bringing forward the projected timeline of the first-rate hike. The BOC now projects a rate hike as early as Q3 next year while most of the other central banks among the advanced economies are still looking at 2024 as the time for lift off.

Commodities Prices Supporting CAD

With oil and commodities prices continuing to rise, domestic data improving steadily and the global outlook improving, investors are now looking to today’s meeting for further signals that the BOC is moving back towards tightening. While no change is expected today (rate and purchases to stay on hold), the market will be scrutinising the bank’s forward guidance, particularly with regard to when it views the next adjustments as likely to be necessary.

Traders Looking for Tapering Clues

Given that there are no new forecast to be provided at this meeting (statement only), the meeting is likely to have a rather subdued impact on CAD. However, risks remain skewed to the upside given recent fundamental developments. Provided the BOC doesn’t attempt to explicitly talk the currency down, CAD should remain supported in the wake of the meeting, with traders currently projecting a further tapering announcement to come as early as next month.

Focus on Forward Guidance

Looking ahead, traders will be keen to judge how confident the BOC is on the ongoing recovery. With vaccination numbers continuing to climb and with the country focusing on reopening further, the outlook looks favourable. Some recent data points have undershot expectations somewhat though, on the whole, data has been broadly supportive of the recovery. While the bank is likely to reiterate its message that downside risks remain, the meeting should be broadly CAD positive.

Technical Views

CADJPY

The rally in CADJPY has seen price testing above the bull channel top, moving as high as 91. The move has lost some momentum recently, with MACD turning negative and the RSI moving lower. However, while above the 89.24 level, the focus is on a continue push higher. Below there, the 88.21 level is the next support zone to watch.