Trading Insights: CAD FX in spotlight

Today’s economic calendar

Bank of Canada (BOC) interest rate decision

• Current rate 4.5%
• Consensus calling for BOC to hold the rate at 4.5% today
• Prospects for a July hike can not be ruled out
• Canada’s inflation outlook could be pointing towards higher inflation outlook, however, a slowing economy is seen as a reason for the expected holding off of hiking today, leaving room for a July hike
• Upside risk for CAD FX pairs i.e. stronger CAD against the majors remains a prospect

Source: TradingView / J. Knobel June 7 2023 6:36 UTC

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Commentary & insights

If the ECB is set to continue hiking rates while BOC looks set to hold rate hikes, why has the Euro been weakening against the CAD?

Looking forward, there could be a chance that the Bank of Canada (BOC) might have to reverse its plans to hold rates:

Still strong Canada consumer price inflation after CPI for April indicated stronger than expected headline inflation. Increasing CPI could be a trigger for the BOC to remain in a rate hiking cycle. This prospect could help strengthen the CAD against other developed currencies.

Chart 1 Canada Inflation Rate Month on Month as of June 7 2023 7:37 UTC

EUR / CAD prospects for further downside?

• Current price: 1.4326
• Key resistance seen near 1.4620
• Upside risk above 1.4620 could place 1.5233 in sight as an upside extension
• Downside prospects for 1.3730 can not be ruled out in the medium term (26-49 days)

Bottom line: there is scope for EUR / CAD speculators to potentially profit if the prevailing 30 day downside move continues to gather momentum, however the risk if price clears above the 1.4620 resistance could sway the short sellers to reverse direction. See chart below.

Chart 2 EUR/CAD of June 7 2023 7:38 UTC