USD/CAD rises to the highest since October as Bank of Canada stays sidelined | Forexlive
The market was looking for a hawkish shift from the Bank of Canada today but it didn’t come. Instead the central bank emphasized nascent signs of a coming slowdown and referred to previous guidance to pause rate hikes.
Looking ahead to the April 12 BOC decision, the market still sees a 27% chance of a rate hike but that has dwindled from pre-statement levels.
USD/CAD is up 54 pips today to 1.3805 with the rest of the FX market essentially flat so this is entirely a CAD-driven move. At the same time, yesterday there was a leap higher in the US dollar on a nod from Fed Chair Jerome Powell to a higher terminal rate. That move started the momentum in USD/CAD and with the pair breaking through the December high, it’s continued today and has just risen above the November high of 1.3808 to run some small stops.
What we’re seeing unfold is rate divergence between the US and Canada with US 2s climbing above 5% and Canadian 2s flat at 4.32%.
If there’s going to be a big run higher in this pair, it will have to come on economic divergence with the US staying strong and Canada stumbling. That’s certainly possible due to high household debt in Canada and variable mortgage rates. I’d expect it to unfold in the second half of the year and potentially trigger BOC rate cuts.
Tomorrow we will hear from Bank of Canada senior deputy Carolyn Rogers, who may try to smooth over any misunderstandings in the BOC statement but I wouldn’t expect any fireworks. For now, the focus will stay on data.