BOC In Focus

The Bank of Canada will be in focus today as it meets for its December monetary policy decision. There is a great deal of attention on today’s meeting given the market expectation that the BOC could well signal a pause in its tightening program. While a further .5% of tightening is expected today, this will bring rate sup to 4.25%, the BOC’s own projected peak rate. With this in mind, the market is looking for the bank to provide guidance signalling a willingness to allow for a period of assessment of the economy on the back of the last year of tightening.

Gauging Market Reaction

If the bank satisfies this expectation, CAD is likely to weaken a little near-term as market attention diverts to other places where central banks are still pushing ahead with tightening, such as GBP and NZD. However, if the bank takes markets by surprise and signals that further rate hikes will likely be necessary, lifting its peak rates projection, this will likely fuel a swift wave of CAD buying, particularly in places where the currency has been depressed recently.

Technical Views

AUDCAD

If the BOC does surprise markets today by extending its tightening cycle, a great candidate for a near-term short is AUDCAD. With the RBA having pivoted on rates recently, hiking by just .25% this week, any hawkish surprise from the RBA today would likely see AUDCAD reversing sharply. Price is currently stalled around the .9112 level and if back below here, .8919 will be the next support to note.