empty
22.10.2024 01:48 PM
USD/CAD. October meeting of the Bank of Canada: preview

On Wednesday, October 23, the Bank of Canada will conclude its next meeting. This meeting is the second-to-last one for this year. Ahead of this event, the USD/CAD pair has reached a 2.5-month price high, trading at the 1.3850 mark. For the first time since August, buyers held above the 1.38 level. This price movement is driven not only by the strengthening of the US dollar but also by the weakening of the Canadian dollar due to dovish signals from the Canadian regulator. However, if the Bank of Canada does not "meet expectations" tomorrow, USD/CAD sellers may initiate a significant correction. Therefore, it might be wise not to rush into long positions on the pair right now.

This image is no longer relevant

The most likely scenario for the October meeting suggests a 50 basis point rate cut. This aggressive forecast is primarily due to inflation, which not only remained within the central bank's target range in September but also showed a downward trend.

According to data released last week, the overall consumer price index (CPI) on a year-over-year basis slowed to 1.6%, whereas a decline to 1.8% was expected. The indicator has been declining for four consecutive months, reaching its lowest level since February 2021 (when it fell to 1.1%). On a monthly basis, the overall CPI has been in negative territory for the second month in a row, reaching a level of -0.4% in September.

Meanwhile, contrary to expectations of a decline, the core CPI slightly accelerated to 1.6% year-over-year (compared to a forecast of 1.5%). However, it is worth noting that despite this increase, the indicator remains within the central bank's target range.

After the release of September inflation data, the market became more confident that the Bank of Canada would adopt an aggressive pace of monetary policy easing this month, implementing a 50-point cut. Additionally, it is expected to announce further steps in this direction. For example, experts at CIBC believe that the regulator will reduce the rate by 200 basis points by mid-next year.

Previously, Bank of Canada Governor Tiff Macklem stated that market participants could expect further rate cuts from the central bank, "considering the progress made in the area of inflation." He noted that the pace and timing of rate cuts would depend on the central bank's assessment of economic data. Macklem did not confirm or deny rumors that a 50-point rate cut was discussed at the September meeting. When asked about this by a journalist, he did not rule out such a development in the future.

In other words, the market is fully prepared for the implementation of an "ultra-dovish" scenario, given the slowing inflation in Canada and the prior rhetoric of the central bank's governor. However, this could backfire on USD/CAD buyers. For the northern trend to continue, the Canadian regulator needs not only to cut the rate by 50 points (a scenario that is already partially priced in) but also to announce further steps in this direction.

The market's most likely scenario does not foresee any pauses in the easing process, so to increase pressure on the Canadian dollar, Macklem must clearly hint at another rate cut during the year's last meeting. He does not necessarily need to specify the expected amount of the cut; it would suffice to signal that the easing process will continue without interruptions.

If, however, the Bank of Canada governor provides cautious assessments regarding the outlook for further rate cuts, USD/CAD sellers will likely take advantage of this cautious approach to trigger a corrective pullback. Even in that case, short positions on the pair would be risky, as the overall fundamental background supports further price growth. After all, inflation in Canada has reached target levels, which cannot be said for inflation in the US, where core CPI and PPI indices unexpectedly accelerated in September. Therefore, even if Macklem does not announce further easing steps, the "dovish" scenario remains the most likely one. This means that after an initial market reaction to the cautious stance from the central bank head, the pair could once again turn upward.

Thus, at the moment, long positions on USD/CAD are risky, as the rhetoric from the Bank of Canada governor might not be as dovish as the market expects. Therefore, a corrective pullback to the first support level at 1.3770 (the Tenkan-sen line on the daily chart) is quite likely in the short term. However, in the medium term, long positions are preferred, given the arguments above. Thus, short-term corrections could be seen as opportunities to open long positions.

From a technical perspective, the pair on the D1 timeframe is trading between the middle and upper lines of the Bollinger Bands, as well as above all lines of the Ichimoku indicator (including the Kumo cloud), which has generated a bullish signal known as the "Line Parade." The main target for the northern movement is the 1.3910 level, which is the upper line of the Bollinger Bands on the daily chart.

Irina Manzenko,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

USD/JPY. Analysis and Forecast

The USD/JPY pair is holding above the key 144.00 level amid continued weakness in the U.S. dollar. Strong household spending data released today in Japan has strengthened expectations

Irina Yanina 18:12 2025-07-04 UTC+2

NZD/USD. Analysis and Forecast

The NZD/USD currency pair is recovering after bouncing from the 0.6030 level, which marks a weekly low, and is attempting to gain further positive momentum. This suggests a break

Irina Yanina 18:08 2025-07-04 UTC+2

USD/CAD. Analysis and Forecast

On Friday, the USD/CAD pair remains near a three-week low, trading below the key 1.3600 level. The U.S. dollar is struggling to extend its gains following yesterday's stronger-than-expected Nonfarm Payrolls

Irina Yanina 17:59 2025-07-04 UTC+2

The Market Celebrates a Victory

Financial markets responded positively to the release of U.S. employment statistics for June. Payrolls rose by 143,000, exceeding Bloomberg analysts' forecasts. April and May figures were revised upward

Marek Petkovich 10:15 2025-07-04 UTC+2

Next Week May Begin on a Positive Note for the Markets (Possible Resumption of Growth in #SPX and #NDX)

The U.S. labor market data, published by the Department of Labor, instilled cautious optimism among investors, extending the rally in U.S. equity markets, supporting the dollar, and weakening gold prices

Pati Gani 10:09 2025-07-04 UTC+2

The Market is Preparing for Another Shock

Just yesterday, U.S. President Donald Trump announced that his administration would begin sending letters to trade partners on Friday, outlining unilateral tariff rates that, according to him, countries will

Jakub Novak 09:55 2025-07-04 UTC+2

Strong U.S. Employment Report Exceeds All Expectations

The U.S. dollar surged against a range of risk assets as the key figures in June's employment report convinced the Federal Reserve that there is no need to lower interest

Jakub Novak 09:49 2025-07-04 UTC+2

What to Pay Attention to on July 4? A Breakdown of Fundamental Events for Beginners

No macroeconomic reports are scheduled for Friday. As previously mentioned, today is a public holiday in the United States, known as Independence Day. All banks and stock exchanges will

Paolo Greco 07:59 2025-07-04 UTC+2

GBP/USD Overview – July 4: Reeves Cried — Did the Pound Collapse?

The GBP/USD currency pair also traded fairly calmly throughout Thursday until the start of the U.S. trading session. Recall that a day earlier, the British currency had plummeted by nearly

Paolo Greco 03:56 2025-07-04 UTC+2

EUR/USD Overview – July 4: Trump's Third Trade Deal Didn't Help the Dollar Either

The EUR/USD currency pair traded very calmly throughout Thursday, until unemployment and labor market reports were released in the United States. However, we will discuss those reports in other articles

Paolo Greco 03:56 2025-07-04 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.