USD/CAD Daily Fundamental Forecast – October 25,2016

USDCAD made quiet progress for almost the whole of yesterday as the pair had broken through 1.3300 last week which had been the range top for the most of last few weeks. With the range top broken and the breakout confirmed by a fast move through 1.3300, it did make slow and steady progress in its uptrend but it stalled for some time at 1.3390 and then came the shocker from the BOC Governor Poloz who was scheduled to make a speech.

In the speech he spoke about waiting for 18 months to see how the outputs and data and economy shapes up but the market mistook it as a mention that the BOC would wait for 18 months before it begins to think about cutting rates. The reason for the uptrend and the breakout in USDCAD had been the expectations that the BOC was seriously considering cutting rates in the next few months and these comments doused the hopes and sent the pair scurrying back down to 1.3280 within a few minutes. But then later on Poloz clarified that his comments was with watching the output gap over the next 18 months and the comments did not pertain to monetary policy and this sent the pair back up to 1.3350 and it sits at 1.3340 having been all over the place during the late US session when the liquidity is usually at its lowest. We have been saying that the BOC would be looking to cut rates in the next few months if the economy continues to show weakness and we continue to maintain that view irrespective of what is said and what is construed to be said.

Based on this perception, we continue to believe in the overall uptrend in USDCAD in the short and medium term and any such corrections in price should be viewed as an opportunity to add to longs. The support has now been confirmed at 1.3280-3300 and any approach to this price can be used as a buying opportunity with stop loss below the support region.

There is no major economic news to be released from Canada for today and we can expect some volatility in this pair between 1.3280 and 1.3380 before the next move upwards.