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Loonie Steady Ahead of BoC at 10am EST

Published December 7, 2016
  • USDCAD remains in a very comfortable range near the 1.3300 level ahead of this morning's Bank of Canada decision at 10 am ET
  • Governor Poloz is widely expected to leave rates unchanged at 0.5% to and strike a balanced tone in the accompanying statement
  • The main risk is that he delivers a pessimistic outlook, given that inflation, labour markets, and non-energy exports are all rather tepid at the moment
  • Last month's headline of a 10k gain in jobs misses the larger context that full time employment has been trending down for quite sometime (Chart 2) which could be a long-term drag on wages, spending, and inflation
  • Non-energy exports are still struggling and one can't expect the Canadian oil patch to fill the gap, especially considering that the US is less dependent on foreign oil with the viability of shale and the increase in US rig counts over the past few months
  • In addition, there is the possibility of NAFTA being renegotiated under the Trump administration which may mean that Poloz will want to keep all of his options open going forward in case there is a negative shock to Canada's exporting sectors
  • On the positive side, the Federal government approved two out of three pipeline proposals and OPEC's production cut has given a near term boost to oil prices; regardless, the market remains skeptical of the long term viability of their plans given that OPEC output reached another record in November
  • If Poloz does deliver a glass-half full statement, then there is scope for USDCAD to move back into the upper 1.3300's
  • Conversely, if he surprises the market with an optimistic outlook, then a test to the 100 day moving average circa 1.3190 is not out of the question in the near term
  • As always, if you have near term or forward exposures to cover, prepare the best you can!

Charts: (1) USDCAD testing its recent range (2) Canadian full time employment 6 month moving average trending lower (3) Economic Calendar