Henry Liu
Former FPA Special Consultant
- Messages
- 473
Bank of Canada (BOC) will once again meet for their Overnight Rate (Interest Rate) and the decision will be announced today at 9:00am sharp. Along with the rate decision, BOC Carney will also announce a Rate Statement to further explain today’s decision. Here’s what analysts are expecting:
9:00am (NY Time) CA BOC Rate Forecast 0.75% Previous 0.50%
ACTION: USD/CAD BUY USD/CAD 0.50% SELL USD/CAD 1.00%
The Trade Plan
BOC (Bank of Canada) will be hiking its Overnight Rate as an overwhelming majority of analysts agree that there is absolutely no doubt for the 25 basis points hike. If BOC hikes as expected, market would have priced it in at the time of the release, so it would be a "no trade". However, what we are looking for is a surprise in the market and that would come in one of two possibilities.
1. BOC decides to hike more than 25 basis points, instead of the 0.75% forecast by analysts, BOC decides to move rates to 1.00%. This would cause immediate demand for the CAD, we'll SELL USD/CAD on a Spike Trade immediately.
2. BOC decides to leave rates unchanged at the current level of 0.50%. This would cause immediate sell-off of the CAD, we'll BUY USD/CAD on a Spike Trade immediately.
The Market
USD/CAD lost significantly against USD last week as most commodity currencies consolidated. Economic growth in China seems to have cooled down a bit, which in turn drove down demands for commodities. USD surged against CAD on Friday after the disappointing consumer sentiment reading which drove investors to the safe haven status of US Dollar. USD/CAD remained in a tight range during today's market showing practically no directional bias ahead of rate decision.
USD/CAD trading in a tight range 07-19-2010
The technical levels that I'd be watching are 1.0580 (resistance) and 1.0500 (support). At breach of either one of these levels could mean shift in short-term sentiment for the USD/CAD pair. In my opinion we should see stronger CAD just before the rate decision tomorrow, as I am already shorting the USD/CAD from 1.0570 level looking to get out at 1.0500~1.0450 before the release.
Additional Thoughts
Last BOC rate hike Governor Carney gave a cautious statement saying that "any further reduction in monetary stimulus would have to be weighed carefully against domestic and global economic developments..." The part on global economic developments is particular unsettling, and if similar statement is issued, we could see some selling on the CAD (means USD/CAD may go up).
On the other hand, Deputy Governor Lane stated that "Recovery in Canada moving faster than expected, yet uneven..." and "the extend and timing of any additional withdrawal of monetary stimulus would depend on how the outlook for economic activity and inflation evolves." These statements are obviously hawkish for the Canadian Dollar as we saw recent CA inflation readings are on a steady uptrend, plus last 3 consecutive months of better than expected employment data... If BOC were to release similar statements, expect to see stronger CAD immediately after the statements...
Here are some more recent comments from BOC Carney to give you a preview of what is likely the case tomorrow:
For historical data and charts on BOC Rate Decisions:
Historical Data & Charts - BOC
For explanation on Spike Trading:
Henry Liu's Trading System
Thanks,
BTW, does anyone use Twitter or Facebook here at FPA? If you like my analysis, help me by spreading the word. Share it on Facebook and Twitter... Thanks a million! -Henry
9:00am (NY Time) CA BOC Rate Forecast 0.75% Previous 0.50%
ACTION: USD/CAD BUY USD/CAD 0.50% SELL USD/CAD 1.00%
The Trade Plan
BOC (Bank of Canada) will be hiking its Overnight Rate as an overwhelming majority of analysts agree that there is absolutely no doubt for the 25 basis points hike. If BOC hikes as expected, market would have priced it in at the time of the release, so it would be a "no trade". However, what we are looking for is a surprise in the market and that would come in one of two possibilities.
1. BOC decides to hike more than 25 basis points, instead of the 0.75% forecast by analysts, BOC decides to move rates to 1.00%. This would cause immediate demand for the CAD, we'll SELL USD/CAD on a Spike Trade immediately.
2. BOC decides to leave rates unchanged at the current level of 0.50%. This would cause immediate sell-off of the CAD, we'll BUY USD/CAD on a Spike Trade immediately.
The Market
USD/CAD lost significantly against USD last week as most commodity currencies consolidated. Economic growth in China seems to have cooled down a bit, which in turn drove down demands for commodities. USD surged against CAD on Friday after the disappointing consumer sentiment reading which drove investors to the safe haven status of US Dollar. USD/CAD remained in a tight range during today's market showing practically no directional bias ahead of rate decision.
USD/CAD trading in a tight range 07-19-2010
The technical levels that I'd be watching are 1.0580 (resistance) and 1.0500 (support). At breach of either one of these levels could mean shift in short-term sentiment for the USD/CAD pair. In my opinion we should see stronger CAD just before the rate decision tomorrow, as I am already shorting the USD/CAD from 1.0570 level looking to get out at 1.0500~1.0450 before the release.
Additional Thoughts
Last BOC rate hike Governor Carney gave a cautious statement saying that "any further reduction in monetary stimulus would have to be weighed carefully against domestic and global economic developments..." The part on global economic developments is particular unsettling, and if similar statement is issued, we could see some selling on the CAD (means USD/CAD may go up).
On the other hand, Deputy Governor Lane stated that "Recovery in Canada moving faster than expected, yet uneven..." and "the extend and timing of any additional withdrawal of monetary stimulus would depend on how the outlook for economic activity and inflation evolves." These statements are obviously hawkish for the Canadian Dollar as we saw recent CA inflation readings are on a steady uptrend, plus last 3 consecutive months of better than expected employment data... If BOC were to release similar statements, expect to see stronger CAD immediately after the statements...
Here are some more recent comments from BOC Carney to give you a preview of what is likely the case tomorrow:
- - (CA) BoC's Carney: Economy is at turning point within the cycle, uncertainty remains
- - Access to capital not a problem for Canada at this time as balance sheets are strong.
- - China move on Yuan currency was an important step, but is not a cure-all for the global economy.
- - BOC will adjust if the Canadian dollar starts to impact inflation
For historical data and charts on BOC Rate Decisions:
Historical Data & Charts - BOC
For explanation on Spike Trading:
Henry Liu's Trading System
Thanks,
BTW, does anyone use Twitter or Facebook here at FPA? If you like my analysis, help me by spreading the word. Share it on Facebook and Twitter... Thanks a million! -Henry
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