USD/CAD eyes Bank of Canada decision

• Bank of Canada expected to hold rates at 5.0%

The Canadian dollar is steady on Wednesday. In the European session, USD/CAD is trading at 1.3758, up 0.12%.

Bank of Canada expected to hold rates

The Bank of Canada meets later today and the markets are widely expecting the Bank to hold the benchmark cash rate at 5.0%. The BoC has aggressively raised rates to levels not seen since 2001 in order to curb inflation. The economy has cooled as elevated rates continue to filter through the economy and inflation eased to 3.8% in September. Still, this remains close to double the BoC’s inflation target of 2%, and central banks have come to realize that the final ‘sprint’ to getting inflation back down to target may be the most difficult phase in the battle to curb inflation.

The BoC is doing its utmost to hold rates and not inflation further pain on households. I don’t anticipate the BoC cutting rates before inflation is back at the 2% target, which won’t occur before sometime next year at the earliest.

US GDP expected to jump to 4.5%

Over in the US, the economy remains strong, raising hopes that the Fed will be able to guide the economy to a soft landing. The US releases third-quarter GDP on Thursday and the consensus estimate stands at a massive annual rate of 4.5%, compared to 2.1% in the second quarter. This would mark the highest level since Q4 2021, when the economy was in recovery mode from the Covid pandemic.

As the major economies grapple with weak growth, US exceptionalism has been marked by a strong labour market which is driving consumer spending. The Fed is clearly worried, with Jerome Powell stating last week that continuing strong growth could complicate the efforts to rein in inflation and force the Fed to raise rates. As far as the Fed is concerned, a strong GDP release could be “too much of a good thing” and would add pressure to raise rates.

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USD/CAD Technical

• USD/CAD tested resistance at 1.3768 earlier. Above, there is resistance at 1.3822
• There is support at 1.3688 and 1.3634

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