Canadian dollar breaks below 1.21, BoC next

The Canadian dollar is in positive territory on Wednesday. In the European session, USD/CAD is trading at 1.2081, down 0.26% on the day.

Canada’s employment picture darkened last week, as the economy showed a loss of jobs for a second straight month. The loss of 68.0 thousand in May follows a dismal April employment report, which posted a reading of -207.1 thousand. The May release missed the forecast of -23.5 thousand. As well, the unemployment rate ticked higher to 8.2%, up from 8.1%. Canada is still grappling with Covid-19, and the vaccine rollout is lagging well behind other major economies, such as the US or the UK. This means the reopening of the economy is still some time away.

The Bank of Canada made headlines at the April policy meeting, when it announced a taper of its stimulus programme, as it reduced bond purchases from CAD 4 billion to 3 billion each week. This made the BoC the first major central bank to announce a scaling back of emergency stimulus which would put in place due to Covid-19. The bank also changed its forward guidance for a possible rate hike from 2023 to the second half of 2022.

As for the upcoming meeting (12:30 GMT), the BoC is not expected to make any changes to policy, which should make for a quiet meeting. The weak job numbers and drop in real GDP of 0.8% likely mean that the BoC will proceed with caution. The Canadian dollar remains relatively high and there is optimism that once the corner is turned with Covid, pent-up demand will translate into a significant boost for the economy.

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       USD/CAD Technical

• There is resistance at 1.2135. The next resistance line is at 1.2197
• There is support at 1.2009, which is protecting the symbolic 1.20 line. Below, there is support at 1.1945

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