CAD[1], USD/CAD[2], Analysis and Talking Points
- CAD Weakens as Risk Appetite Dips
- BoC to Stick With October Taper
A modest bout of risk off sentiment sees commodity linked currencies on the backfoot with safe-havens outperforming. AUD/USD[3] ultimately fell on the back of a dovish taper, with the initial spike higher quickly faded. As I mentioned last week[4], the Aussie had moved from one extreme to the next, making upside in the pair harder to come by.
USD[5]/CAD continues to hold onto key support in the form of the 200DMA situated at 1.2527, with the current bounce now seeing the 38.2% fib of the 2021 range tested. Above this area of resistance eyes will be on for a move towards 1.2650, however, this would need to be accompanied by a more pronounced pullback in risk appetite and commodities. As it stands, trend signals are somewhat directionless and thus price action could be somewhat choppy in the week ahead.
As I said previously, key support is situated at the 200DMA, therefore a close below this level would likely confirm 1.2947 as a top and increase pressure on the downside with a move to 1.2420.
USD/CAD Chart: Daily Time Frame
Source: Refinitiv
For CAD traders, aside from risk trends, focus will lie on the BoC’s monetary policy decision. Since the prior meeting, economic data has come in a touch firmer with the BoC’s CPI measure at 2.5% from 2.3%, while the unemployment rate has dropped from 7.8% to 7.5%. That said, the BoC are likely to stick with its plan to taper QE further in October. However, a factor to be aware of is the recent rise in US/CA 5Y spreads, which points to topside risks for
