CAD is waiting for an obstacle in the form of the Bank of Canada

The Canadian dollar showed the best dynamics in the first days of January among the major currencies, but things can change dramatically after the meeting of the Central Bank of Canada. Although no rate hikes are expected, recent CAD movements indicate that some investors are counting on the recognition of the strength of the labor market and the support it provides to the economy.

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Canadian regulator officials can spoil the mood of the bulls. After tightening the policy in October and declaring that rates should rise to neutral levels, they made the market believe in further tightening. Later, due to the decline in oil prices and sharp fluctuations in the stock market, the financial authorities moderated their fervor.

Now that black gold prices have pushed away from local minima, the stock market has been recovering for several days in a row. At the same time, the indices are still below the marks during the December meeting of the Central Bank. In addition, a serious jump in employment in the November-December period did not contribute to the strengthening of the rest of the economy. Consumer spending is growing slowly and there is a risk of lower inflation.

Significantly affected by the US trade wars, oil production got cheaper, currency weakened, as well as the trading activity. Despite the fact that the Canadian regulator has fewer worries now as compared to December, he is unlikely to change his forecast when the stock market and oil fell. Too little time has passed since the situation has improved.

The Bank of Canada will also present a monetary policy report and updated economic forecasts, followed by a press conference by the head of the regulator. Representatives of the Central Bank will have many opportunities to clarify their estimates and set the stage for the next major move of the USD/CAD pair.

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If the financiers focus on the problems of Western Canada and the economy as a whole, the pair will reverse to the detriment of the need to return rates to a neutral level. There is a chance of a rebound in USD/CAD pair to 1.34. Provided that the last indicators will be enough to instill confidence in the Central Bank and this will allow him to declare a further increase in rates, the USD/CAD in flight down can reach to 1.3180.

The material has been provided by InstaForex Company - www.instaforex.com