Bank of Canada could raise rates by mid-2022

Bank of Canada not changing rates but could raise rates by mid-2022

If the Bank of Canada continues to believe that the economic recovery will continue until 2022, it may try to stay ahead of the curve by raising rates around the middle of the year.

After surprising the markets at its last meeting by ending its quantitative easing program, the Bank of Canada left rates unchanged at 0.25%, as expected.

Although the Bank of Canada has been encouraged by the unemployment rate, which is near pre-pandemic levels at 6%, they have maintained their forecast pending more data and economic information from the Omicron variant of the coronavirus. They expect inflation data to remain high in the first half of 2022 and return to 2% in the second half of 2022. At the same time, the Bank of Canada has said it “will provide the appropriate degree of stimulus. monetary policy to support the recovery and meet inflation targets. The next Bank of Canada meeting is scheduled for January 26, when the Bank will release its full outlook for the economy and inflation.

USD / CAD had recently retraced 100% of the declining wedge when price broke on October 21 near 1.2288. The price climbed back up to 1.2854, testing September 21 highs. The USD / CAD pair is highly correlated with crude oil. The current correlation between the two assets is -0.91. A reading of -1.00 indicates that there is a perfect negative correlation, which means that assets are moving in opposite directions 100% of the time. -0.92 is a STRONG negative correlation. As crude oil fell towards the recent OPEC meeting and the coordinated release of oil from the SPRs, the USD / CAD rose. On Tuesday, the USD / CAD pair lost nearly 1%, with the price slipping from 1.2754 to 1.2635 as crude oil bid and traders in the USD / CAD pair took profits on forward buying. the meeting. Price has returned to the 38.2% Fibonacci retracement level from October 21 lows to December 3 highs near 1.2638. Resistance is at Tuesday’s high and trendline resistance near 1.2767, then December 3rd high at 1.2854. Horizontal resistance above is at 1.2896 and 1.2949.

Daily USD / CAD Chart

Source: Tradingview, Stone X

On the 4-hour chart, the pair USD / CAD has maintained its horizontal support at 1.2600 so far today. Below that, immediate support is at the 50% retracement level near 1.2571, the 50 day moving average at 1.2534 (see daily chart) and the 61.8% Fibonacci retracement near 1.2504. .

USD / CAD 4 hour chart

forex usd/cad 08122021
Source: Tradingview, Stone X

Note on the daily chart, that if the price falls below the October 21 lows, the USD / CAD pair will have broken the neckline of a double top formation from 1.2854. The goal is the height of the figure added to the break in the neck line, which would be close to 1.1730! (A move like this would likely have a crude oil price close to $ 40!)

If the Bank of Canada continues to believe that the economic recovery will continue until 2022, it may try to stay ahead of the curve by raising rates around the middle of the year. Much will depend on the direction of the Omicron variant. So far, the economic data looks good for Canada!

By Joe Perry, » Official site

Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or a solicitation to buy or sell forex foreign exchange contracts or CFDs. Although the information contained in this document has been taken from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may arise from the fact that someone relies on such information.

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