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The Bank of Canada (BoC) is forecast to deliver another 75 basis points (bps) hike, raising its policy rate from 3.25% to 4.00%.

Bank of Canada Meeting

“We look for the BoC to lift its policy rate by 75 bps in October due to stubbornly broad and persistent underlying inflation. We expect an additional 25 bps move in December with a terminal rate of 4.25%, as rapidly slowing growth will warrant a pause in the new year. The CAD is doomed. The higher that rates go, the greater the downside macro shock and the more the CAD needs to reflect it.” (TDS)

We also get an updated release of a new Monetary Policy Report and Governor Macklem will hold a press conference an hour after the decision.

Bank of Canada to Hike by 75 bps

BoC rate expectations after the recent CPI report have The OIS curve currently looking for 70bp of tightening which means that a 75bp hike should not be enough to drive CAD higher but what about the message from the Bank of Canada and Governor Macklem?

With a slowdown in housing data, employment, and growth we think the bank will be cautious in terms of rate hikes going forward and point to a

The Canadian dollar has been the best-performing G10 currency against the dollar this year but is still down 7%. The market has sold the USD down on  the view of the Fed turning dovish going forward but we think this is unlikely and this view is priced in.

Big Bearish Fundamentals to Weigh on the CAD

Equity markets have rallied hard and the Canadian dollar has the highest correlation of the G10 currencies with world equity markets. We see the rally as a bounce in a bear market and expect it to end which is bullish for the USD and bearish for the CAD.

 Another major bullish fundamental is a slowing global economy. There will be no turnaround in the global economy in the short term and the odds of a recession are high which tends to firm the USD and hurt risk-sensitive currencies like the CAD.

Technical Analysis

On the monthly and daily charts, the key support level is 1.3500 and only a break and close below it will change our USD Bullish stance. On the daily chart we are looking for a breakout to the upside above resistance and 20-day moving average to trigger follow-through buying to the upside to 1.400 with a possible run on to 1.4500.

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