All eyes will be on the Bank of Canada policy meeting on Wednesday (14:00 GMT ). The bank is expected to maintain interest rates at 0.25%, where they have been pegged since last March, at the start of the Covid-19 pandemic. Any drama will revolve around the bank’s programme, with the BoC widely expected to trim weekly government bond purchases from CAD 4 billion to 3 billion.
A trimming of would be in response to the economic recovery, which has been faster than anticipated. Some 90% of jobs lost during Covid have been recovered and GDP is expected to climb above pre-pandemic levels in the second quarter.
With the economy clearly moving in the right direction, the cautious BoC will likely respond with a tapering , while maintaining interest rates and its accommodative . Although a tapering move is expected, the Canadian dollar could gain ground on Wednesday due to the sheer significance of such a move – it would mark the first tightening in policy by any major since the Covid pandemic.
We could also see the Canadian dollar react to the tone of the rate statement. A “less dovish” tone than expected from the bank could improve sentiment towards the Canadian dollar and send the currency to higher ground.
Canada will also release data on Wednesday (12:30 GMT ), although these numbers are likely to be overshadowed by the BoC rate decision. Headline is expected to tick higher to 0.6%, up from 0.5%, while Core CPI is expected to fall to 0.0%, down from 0.3%.
There is support at 1.2446. This is followed by support at 1.2386. On the upside, we have resistance levels at 1.2598 and 1.2690