Market Pricing – Unlikely to Adjust Rates

The Bank of Canada (BoC) is poised to update policy later today at 2:45 pm GMT+1. Markets are currently pricing around a 16% probability of a 25bp cut at the upcoming meeting, with June pricing in -20bps of easing and July fully pricing in a -25bp cut.

Recent Macro Data

The most recent data to be aware of heading into this event, of course, is Friday’s dismal jobs numbers for the month of March. The unemployment rate climbed north of 6.0%, up from 5.8% in February and comfortably surpassing the 5.9% median estimate. This marks the first time that the jobless rate was above 6.0% in a little more than two years. Also worth remembering is employment growth, which revealed a net loss of 2,200 jobs in March, vastly undershooting economists’ expectations of a 25,000 gain in jobs and south of the 40,700 jobs gain in February.

In terms of where we are regarding inflation, year-on-year CPI inflation slowed to 2.8% in the twelve months to February, down from 2.9% in January and lower than the projected 3.1% estimate. For the core measure, inflation also slowed to 2.1% over the same period, down from 2.4% in February. According to the BoC, ‘The [inflation] target aims to keep total CPI inflation at the 2 per cent midpoint of a target range of 1 to 3 per cent over the medium term’. As you can see, inflation is fast approaching that mid-point target.

CAD Ahead of the Event

Assuming that the central bank does as the market expects and holds the Overnight Rate at 5.0%, this may trigger an immediate pop higher for the CAD, but it will unlikely be much to write home about. What will be important in this case is what is said (or not) in the accompanying Rate Statement and the Press Conference 45 minutes following the rate announcement. Ultimately, in light of recent inflation data softening and the broad miss on employment, markets will be looking for dovish hints at this point, which may weigh on any initial upside from a hold decision. A 25bp cut, on the other hand, will weigh heavily on the CAD and underpin major currency pairs such as the USD/CAD and crosses like the EUR/CAD, for example.

The FP Markets Research Team have noted that the USD/CAD has been rangebound since the beginning of 2016, with a more local range emerging on the monthly scale from October 2022 between CAD1.3244 and CAD1.3818. As you can see, there is limited support or resistance in play on the monthly chart as we write. The daily chart, on the other hand, has support from CAD1.3388 and CAD1.3661 in view. What may also be of interest is the pairing has continued to test the mettle of the underside of a breached rising wedge pattern since breaking lower at the beginning of March (taken from the low of CAD1.3366). With this, the area between daily resistance at CAD1.3661 and the underside of the breached rising wedge could be a resistance zone to keep an eye on heading into today’s event.

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