Lest anyone think that the Bank of Canada may be easing given comments from deputy governor Carolyn Wilkins earlier this week, Governor Stephen Poloz made it very clear earlier today that he feels the central bank has monetary conditions “about right.” He also said he feels that global conditions have eased a lot. These comments were looked at as hawkish by the markets. Wilkin’s comments on Tuesday were taken by the market as dovish, given that she mentioned the BoC has room to manoeuvre and has other “tools” the bank can use, such as forward guidance. Wilkins is considered a front runner to take the head position when Poloz’s term ends in mid-2020.
As Poloz was speaking, USD/CAD came under pressure and traded down 45 pips from 1.3325 down to 1.3270.
USD/CAD wasn’t the only pair to sell off on the Poloz comments. EUR/CAD fell 70 pips from 1.4470 down to 1.4700. In addition, GBP/CAD sold off over 100 pips from 1.7270 to 1.7162.
However, as I have been writing about ad nauseam, USD/CAD has been confined to the apex of the symmetrical triangle dating back to early 2016 between 1.3150 and 1.3400.
If the USMCA gets passed sometime soon and the Bank of Canada is hawkish moving forward, then these may help act as a catalyst to push USD/CAD out of the apex of the long-term symmetrical triangle.
What will be the catalyst to push price out of the triangle? Two immediate items come to mind. The first is Canadian Retail Sales, which are to be released tomorrow. Headline expectations (MoM) are for sales to have risen 0.2% in September after falling 0.1% in August. However, more importantly, retail sales ex-autos (MoM) are expected to have risen 0.3% in September after falling 0.2% in August. If these figures are much better or much worse than expected, this may be enough to drive price out of the range.
The second item, and the more likely event to move USD/CAD, is the ratification of the United State-Mexico-Canada Agreement (USMCA). Speaker of the U.S. House of Representatives, Nancy Pelosi, has indicated that she is hopeful the Democrats and the Republicans can get issues resolved as early as today. The sticking point is that Democrats want stronger enforcement mechanisms in the pact. The passage of the USMCA would be good news for both the Canadian dollar and the Mexican peso, and both may go bid.