BOC In Focus

Looking ahead, the big data focus today is the Bank of Canada July rate decision. While the market is expecting rates to remain on hold, traders are looking for the central bank to take a further step along the road to policy normalisation by announcing a further reduction in asset purchases. The base expectation is for a further $CAD1billion reduction, taking weekly purchases down to $CAD2billion.

Economic data has been improving firmly over recent months while vaccination optimism and reopening successes have helped lift sentiment also. The BOC is consequently forecasting an even stronger acceleration over the coming months, endorsed by above-forecast inflation. With this in mind, today’s meeting is likely to be firmly hawkish, sending CAD higher in the near term.

On the other hand, given the built up expectations ahead of the meeting, particularly on the back of the hawkish RBNZ meeting overnight, there is ample room for disappointment if the BOC refrains from any adjustments at this meeting.

Where to Trade The BOC Meeting?

CADJPY

CADJPY has been correcting lower within the bullish channel over recent weeks. However, RSI and MACD have been showing bullish divergence recently, suggesting scope for a break and continuation higher. A break of the bull flag formation at the 89.24 will see bulls targeting 90.69 and 91.60 thereafter.