December 7, 2021 15:00:39

The Bank of Canada becomes the second major central bank to meet amid the rapid spread of the Omicron variant. Policymakers are appearing to have different takes on the impact on economies. The upbeat messages from the Fed and earlier today, the RBA contrasts with recent BoE comments which were more cautious.

After the BoC announced it would immediately end QE after its October meeting, the domestic economy has continued to grow strongly. Bumper employment reports, strong Q3 GDP data, plus inflation at multi-decade highs above 5% underscores a strong economic outlook. The market is also backing this with five rate hikes priced in for next year, the first in the second quarter.

With only a statement this time, the BoC may prefer to wait for its meeting next month when it presents its new forecasts, to gauge the Omicron impact. If so, CAD will be driven by the general risk mood as oil and commodities rebound. Of course, we have the build up to next week’s Fed meeting too, with Friday’s US CPI data to set the scene. Traders are back to pricing in a full 25bp hike at the June FOMC meeting.

Overbought USD/CAD finally gets sold

After six weeks of gains, this major is seeing a decent reversal this week. The push past the low 1.28s continued to elude buyers with the July high at 1.2807 also proving solid resistance, and prices have fallen sharply

The breakdown under the one-month bull channel takes the pair to its 21-day EMA. More downside will aim for the Fib level (38.2%) of the October to December rise at 1.2637. The midpoint of that recent move higher comes in at 1.2571, with the 100-day SMA at 1.2576 also set to provide support.