1. The Monetary Policy outlook for the BOC.
For the past few months, the BOC has been one of the least dovish central banks among the majors. After recent data surprised meaningfully to the upside, market participants have been speculating that the bank will look to taper as soon as the H1 2021. This view was confirmed when the bank announced a discontinuation of their market functioning purchase programs in March. After the most recent batch of econ data (especially jobs data), the market is expecting the bank to announce a reduction in QE purchases as the April meeting. The one negative caveat to this has been the deterioration in Canada’s virus situation and poses a potential hurdle for the BOC’s tapering plans and something to consider in this week’s upcoming policy meeting.
2. Commodity-linked currency with dependency on Oil exports.
Oil staged an unprecedented recovery after hitting rock bottom in 2020. The move higher has been partly driven by (1) supply & demand (OPEC’s production cuts); (2) improving global economic outlook (vaccine roll out and monetary and fiscal stimulus induced recoveries); (3) rising inflation expectations (reflation). Even though further gains will be an uphill battle after the push higher, the bias remains positive in the med-term as long as the supportive factors and drivers remains intact and should be supportive for the CAD in the med-term.
3. Developments surrounding the global risk outlook.
As a high-beta currency, CAD has benefited from the market's improving risk outlook over recent months as participants moved out of safe-havens and into riskier, higher-yielding assets. Also, as a pro-cyclical currency, the CAD enjoyed upside alongside other cyclical assets after moving into an early post-recession recovery phase with expectations of global synchronized recovery. Even though the risks remain surrounding the virus and thus global economic outlook, the success of the global vaccination roll out should prove supportive for the CAD.
For the past few months, the BOC has been one of the least dovish central banks among the majors. After recent data surprised meaningfully to the upside, market participants have been speculating that the bank will look to taper as soon as the H1 2021. This view was confirmed when the bank announced a discontinuation of their market functioning purchase programs in March. After the most recent batch of econ data (especially jobs data), the market is expecting the bank to announce a reduction in QE purchases as the April meeting. The one negative caveat to this has been the deterioration in Canada’s virus situation and poses a potential hurdle for the BOC’s tapering plans and something to consider in this week’s upcoming policy meeting.
2. Commodity-linked currency with dependency on Oil exports.
Oil staged an unprecedented recovery after hitting rock bottom in 2020. The move higher has been partly driven by (1) supply & demand (OPEC’s production cuts); (2) improving global economic outlook (vaccine roll out and monetary and fiscal stimulus induced recoveries); (3) rising inflation expectations (reflation). Even though further gains will be an uphill battle after the push higher, the bias remains positive in the med-term as long as the supportive factors and drivers remains intact and should be supportive for the CAD in the med-term.
3. Developments surrounding the global risk outlook.
As a high-beta currency, CAD has benefited from the market's improving risk outlook over recent months as participants moved out of safe-havens and into riskier, higher-yielding assets. Also, as a pro-cyclical currency, the CAD enjoyed upside alongside other cyclical assets after moving into an early post-recession recovery phase with expectations of global synchronized recovery. Even though the risks remain surrounding the virus and thus global economic outlook, the success of the global vaccination roll out should prove supportive for the CAD.