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Weekly Currency Update

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Focus is Solely on the Bank of Canada

Focus is Solely on the Bank of Canada

  • The Canadian dollar finished the week on a high note, sustaining late-week gains versus the US dollar that had pushed it below 1.2750. The S&P 500 rose for the first time in a week since early April, indicating that the risk tone is assisting the CAD to some extent. Correlation shows how the CAD has been closely tied to stock movements over the previous week. With domestic fundamentals ready to provide the CAD a bit more lift in the short run, we believe the move out of the trading range signals to a potential continuation of the CAD's comeback from 1.30+ levels. We also think the broader USD rally is poised to moderate or reverse somewhat in the coming weeks which should nudge the CAD a little higher.

Expect the BoC to raise rates by 50bps this week

  • The coming week is chock-full of possibly market-moving events. The Bank of Canada's policy announcement on Wednesday will be front and center for Canada; the expectation is for a 50 basis point hike in the Overnight Target Rate to 1.50 percent. We also expect a moderately hawkish policy statement, given that GDP and inflation have continued to outpace the BoC's expectations in its April MPR. Remember that the MPR forecasted 5.8% inflation and 3% GDP growth in the first quarter (SAAR). The March CPI was about a point higher than the Bank of Canada's prediction, but GDP growth is hovering around 5%. For the July and September BoC policy decisions, resilient growth and (well) above-target inflation should keep 50bps rises on the table. Observe the live exchange rates.

USD should remain subdued ahead of NFP data on Friday

  • Today is a US holiday, so markets will be quiet to begin the week, with Friday's NFP data (early consensus is for +332k) likely to keep market participation low. May ISM and housing statistics are also expected to sway market mood this week, while St Louis Fed President Bullard's speech on Wednesday will be watched closely after his previous comments suggesting the Fed could begin to loosen policy in 2023.

This week’s USD/CAD range: 1.26 -1.28

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