The stage is set for the Canadian dollar to potentially see some noticeable gains against the US dollar this week.
First and foremost is the Bank of Canada’s policy announcement scheduled for Wednesday. As discussed previously, there is a good case to be made for both a rate hike and a pause. Analysts are leaning slightly towards a 25 basis points (bps) increase. Given that it’s such a close call, if a hike does happen, the Canadian dollar could experience a larger than usual bounce since it’s not fully priced in by the markets.
Also playing in favor of the Canadian dollar is the increasing certainty about when the Fed will stop raising rates. While there has been much speculation, this week Federal Reserve officials have begun expressing a more unified stance that the end of the rate hike cycle, at least in the US, is here. This has broadly weakened the US dollar and set the conditions to allow the CAD to supercharge its gains.
Finally, if the Bank of Canada’s forward guidance and comments accompanying the policy announcement are hawkish (aggressive) and suggest the need for more rate hikes, the Canadian dollar will benefit even more.
If all the stars align for the Canadian dollar, it might soar high in July.
The Canadian dollar is currently trading at 1.3252 against the US dollar.
