Fed in Focus

The Loonie is on watch this week given the double central bank meetings we have tomorrow as both the BOC and the Fed give their September rate decisions. USD is weakening today ahead of the FOMC as traders brace for a dovish shift. The market is looking for the Fed to cut rates by .25% while signalling the likelihood of further easing to come over Q4, in line with the sharp drop we’ve seen in jobs growth recently. These dovish expectations have emerged despite US inflation data continuing to push higher recently with August CPI rising to 2.9% from 2.7% prior, well above the Fed’s 2% target.  If the Fed focuses more on downside risks to the jobs market than upside risks to inflation, this should keep USD well sold near-term, putting pressure on USDCAD.

BOC Expectations

On the BOC side of things, the bank is also expected to cut rates tomorrow by a further .25%. However, today’s CAD inflation data will be closely watched and any upside surprise today could derail these easing expectations last minute. If the BOC refrains from easing tomorrow, or eases but signals that a further pause will likely be appropriate, USDCAD is vulnerable to a much lower closing price this week, particularly if the Fed delivers on dovish expectations.

Technical Views

USDCAD

The pair looks to be failing once again at the 1.3866 level with price now reversing lower from the level. Focus will be on a fresh test of the 1.3618 level and the rising trend line from last year’s lows. Bulls need to defend this zone to prevent a deeper drop towards the 1.3448 level next.