Canadian Dollar Outlook - BoC Rate Cut, OPEC+ Output Cut USD/CAD Price Drivers

March 04, 2020

Canadian Dollar Outlook - BoC Rate Cut, OPEC+ Output Cut USD/CAD Price Drivers

CANADIAN DOLLAR (CAD) PRICE, CHART AND ANALYSIS

Will the BoC cut interest rates by 25 or 50 basis points?
Bullish ‘golden cross’ formation suggests higher prices.

USD/CAD – FUNDAMENTALS AND TECHNICALS SUGGEST HIGHER PRICES

The Bank of Canada is fully expected to cut interest rates by at least 25-basis points this afternoon at 15:00 GMT with a 50-basis point cut nearly fully priced in. The Fed’s emergency 50bp rate cut on Tuesday has set in motion another round of vigorous monetary easing and the BoC will not want to be left behind as central banks around the globe battle to fight the negative economic effects of the coronavirus. If the BoC cut by 50bps, then the Loonie may take a short-term hit against a range of currencies including the currently weak US dollar.

OPEC members are currently assembling for talks in Vienna and are expected to announce further production cuts this week to help shore up the weak oil market. Reports so far suggest that OPEC+ will push for an additional one million barrel a day output cut although Russia is still said to be undecided. Canada is the sixth largest producer of crude oil globally, and the oil and natural gas industry added $108 billion to the Canadian economy in 2018 and supported in excess of 530,000 jobs.

This year’s USD/CAD rally has now pushed the 50-day moving average through the 200-dma, forming a bullish ‘golden cross’ on the daily chart. This technical set-up normally suggests higher prices ahead, and if this is the case then the recent short-term sell-off may soon reverse higher and re-test the recent nine-month high at 1.3465. The CCI indicator has moved out of overbought territory for the first time in a week, while volatility levels are near a five-month high. To the downside, three recent lows between 1.3314 and 1.3320 protect the 20-dm at 1.3297.

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