The Bank of Canada (BoC) meeting week might prove to be a catalyst for an upside correction in USD/CAD, in the view of economists at ING. They suspect that the BoC may fall short of explicitly endorsing the current market pricing.

BoC to taper, but may fall short of aggressive tightening expectations

“The rally in CAD is looking quite tired, and we expect to see more support in USD/CAD around the 1.2300 level.”

“We do expect the BoC to deliver another round of tapering – cutting weekly purchases from CAD2 B to CAD1 B – but that is a move that is likely fully priced in. The main market focus will be on the forward-looking language, and here we suspect that the Bank may simply reiterate they expect the first hike in 2H22, hence falling short of the market’s aggressive tightening expectations.” 

“With the USD correction now past us, we see the balance of risks clearly tilted to the upside for USD/CAD next week.” 

“August GDP data released two days after the BoC meeting may provide only a small help to CAD.”