June 9, 2021 10:23:10

Not too much is expected from the Bank of Canada meeting this afternoon. There is no press conference or policy report and little pressure on the bank to follow up on the April tapering decision. The last two job reports and Q1 GDP have disappointed, mainly due to renewed lockdowns, but strong CPI figures and an impressive vaccine push means the bank should continue to gradually withdraw emergency support, with perhaps a nod to another round of tapering in July.

Expect CAD to go bid if this is explicit, with a growing divergence between the hawkish BoC and patient Fed. On the flip side, any hints of concern over Covid variants and further lockdowns will see the loonie soften. CAD is the most overbought and well-populated major currency so a more cautious BoC would see a sharp move higher.

USD/CAD waiting to break

This major continues to consolidate above long-term support around 1.20. Rebounds have been lacking in momentum with gains modest and technical resistance around 1.12150. The 13 May high at 1.2203 will offer further resistance above with the initial breakdown mark at 1.2252. Any hawkish surprise will need to be big at this stage to get through the long-term psychological support at 1.20 but if this is decisively broken, next USD support lies at 1.1920 and then below 1.19 towards multi-year levels.

CAD/JPY uptrend too hard to ignore?

We’ve said “the trend is your friend” in JPY crosses before and CAD/JPY is certainly a risk on/off cross which has been in a very strong uptrend since November last year. A new cycle high printed at 91.18 at the start of the month and prices have consolidated around previous May highs. Bulls are looking to the 91.70 high reached in 2017 and 2018 while support sits at the 21-day SMA around 90.21 and then the 19 May low at 89.58.