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 discusses recent developments affecting the Canadian dollar since RBC Economics added one additional FOMC rate cut to their interest rate profile last month.
First, the Bank of Canada cut rates by 25 bps in July but surprised with a Dovish tone to their statement. Further, more focus was placed on the downside risks to economic growth. Based on this, the BoC is still expected to cut rates by 25 bps in both September and October but with risks geared toward a third cut in December, given the BoC’s more dovish stance.
Also, equity markets have proven to be slightly more volatile in September and October, especially heading into the US election season. This may open-up the potential for USDCAD to test the 1.4000 threshold, which is his end of year forecast. George will maintain his trading range of 1.3400 to 1.3900 for the month ahead. With the potential for USDCAD to move toward the 1.3900/1.4000 area, USD sellers should have an opportunity to reduce exposure at better levels.