- BoC’s meeting takes place as soon as tomorrow
- Goldman Sachs doubts a rate increase
- USDCAD could move higher if it breaks a short-term resistance
The Bank of Canada is widely expected to deliver a rate hike at its meeting on Wednesday (3:00 pm BST). The likelihood of that move is already close to 100% thus any other scenario than a so-called ’hawkish hike’ could encourage traders to pull out their money from longs in the CAD.
Unlike the market consensus, Goldman Sachs’s analysts doubt a rate hike from the Canadian Central Bank tomorrow. Is it just wishful thinking? It’ll turn out before long. Let’s cut to the chase and present the rationale of that view from Goldman Sachs.
GS’s analysts think that the BoC will refrain from hiking rates on this occasion and deliver a rate rise in October. According to the bank, a recent bunch of hawkish remarks which have come from the BoC’s member have been a direct response to the lack of market reaction to the incremental hawkish changes at recent meetings.
GS indicates that markets didn’t respond to subtle changes in the BoC’s tone in the past months. Source: Business Insider Australia
On that account, the bank claims that signals that a rate hike is in the offing which were expressed in the prior month were designed rather not to suggest that a rate increase was coming in July but to prepare markets for higher rates in the medium-term.
Furthermore, while the GS admits that recent data coming from the Canadian economy has been strong, one of the most noticeable reason for concerns could inflationary pressures which are still subdued. The weakness in inflation data should give the BoC pause, the bank adds.
At the end of the day, while Goldman Sachs does not forecast a hike on Wednesday, it thinks that increases are coming, admitting that they are ’completely warranted’ as a economic performance has improved, the risk of the oil shock has subsided, and the economy should further take advantage of stronger global growth.
A M30 time frame suggests that the pair is just ahead of a relevant resistance area. If it’s broken, it could provide a further upside move towards 1.30 or much beyond when the BoC falls short of undue market’s expectations. Source: xStation5