Preview from the Bank of Canada: Will the BOC taper?
Preview from the Bank of Canada: Will the BOC taper?
The BOC purchased CD 3 billion CDs a week to CD 2 billion a week at the latest Bank of Canada Meeting on July 14, because it felt the central bench continued to strengthen the economy. Moreover, although their annual GDP in 2021 has slightly decreased to 6%, they have increased their projections in 2022 to 4.5%. The committee says it expects inflation in the short term to remain above 3% and converge almost 2% in 2022.
Everything about the Bank of Canada you needs to know
However, the BOC may consider a delay in its conversation until its next meeting on 18 October when it meets on Wednesday. Although the PMI manufacturing system for August was somewhat better than in July (57.2 vs. 56.2), the July data were mixed with 94,000 vs. 230,700 in June as regards employment change. The rate of unemployment also increased slightly from 7.4% to 7.5%. Following the meeting of the BOC on Wednesday, the next review of the change in employment will not be until Friday.
What are indicators of the economy?
It is also because of inflation that they may be delayed. While CPI was much stronger than expected in July at 3.7% vs. 3.1%, it was -0.4% significantly lower than the initial +0.1% estimate released two weeks earlier. (PPI flows down the road in theory to the CPI).
Inflation, what is it?
In addition, even if it looks backward, Q2 GDP was a big miss vs. The number of headline figures in Q2 was -0.3% vs +0.6% and in Q1 +1.4%. It was even worse, annualised! Printing was expected to be -1.1% vs +2.5% and +5.5% in the first quarter. Due to the big difference in expectations between economists and the actual print, the BOC might want to wait for more Q3 data before tapering again.
Another reason why the BOC could be held is that Prime Minister Trudeau has requested snap elections on 20 September based on a strong economic recovery from the coronavirus and the distribution of vaccines. The BOC might not want to be seen by tapering on Wednesday to favour Trudeau.
USD and CAD are in a critical area that can determine the pair’s future direction. Horizontal support is available between approximately 1,2500 and 1,2600. The respective 50% renewal and 61,8% renewal in the Fibonacci from the 1st June lower to the 20th August are also 1.2590 and 1.2480, which offer additional support for this area. Note that the daily timeframe of the 200 days move average is only below 1.2534 (not shown). If the price moves below this support area, the price could be tested by about 1.2000 on 1 June. But if price can surpass this area, around 1,2950 again August 20th highs could be played.
