View the George Davis Report | A Canadian Dollar Video Series – May 2022 Edition | Allison Martinello Group | RBC Wealth Management

May 17, 2022 | Dane Charles


Share

We are pleased to bring you the latest edition of the series produced by our colleagues in RBC Capital Markets, hosted by George Davis, CMT, the award winning Chief Technical Analyst for Fixed Income and Currency Strategy.  In this installment George talks about how recent economic data supports an aggressive Bank of Canada with regards to monetary policy.

 

View the George Davis Report here

 

Both February GDP and March CPI came out well above expectations.  On the jobs front,  tight labor market conditions leading to increased wages also feeds into the inflation narrative.  RBC Economics most recently revised forecast, now calls for the BoC to raise rates 50 bps at both the June and July meetings.  As for CAD performance specifically, because both the BoC and FOMC have similar expectations for upcoming rate increases, rate differentials are roughly neutral for CAD at the moment. 

 

Further, broader USD direction is still by far the most important driver for USDCAD.  Thus, the downtrend in equity markets, creating a risk-off environment, has led to broad-based USD strength, leading USDCAD to the upper end of its recent trading range.  Also, it’s notable that USDCAD has broken above the 1.2950 threshold after spending many months trapped between 1.2450 to 1.2950.  The recent breakout suggests a higher trading range  for the month ahead between 1.2750 and 1.3250 putting USD sellers in an advantageous positon.  USD buyers should look to corrections below 1.2850 as an opportunity to add exposure.