Societe Generale: No Change Expected From The BoC; USD/CAD To Drift Lower M-Term

Societe Generale Research discusses its expectations to today’s BoC April policy decision. 

“The Bank of Canada statement may not set the world on fire. No-one expects a change in rates. However, futures traders have built up the biggest short CAD position since January 2019, just after the last Fed rate hike of the cycle that started in late 2016. USD/CAD peaked above 1.36 after that hike, before falling in 2019. USD/CAD tracks relative US-Canadian rates, but by far the biggest driver of that spread, is the trend in US rates – and they’ve peaked,” SocGen notes.

“We think USD/CAD will drift lower in the coming months – even if a bland Bank of Canada policy statement don’t point to fireworks today,” SocGen adds. 

USDCAD Daily Chart

After a retest of the broken long trend, the quotations are headed down again – confirmation of the forming short trend. Flag formation and price action supported by a pin bar at the retest of the breakout confirm the downward movement towards the horizontal support at 1.3322. Sequential re-enters oversold zone, further confirmation of accelerating decline. Intermediate support will be provided by the level at 38.2 fibo, the previous bottom and 200 MA in the zone 1.3395/1.3420. I expect the support zone to be overcome and the short to continue to 1.3320.

FX Forecast Distribution

The distribution of banking expectations for the current quarter shows 1.34 as the equilibrium point for the cross with the move extending to 1.32

Long-term expectations support the short trend at 1.30

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