USDCAD Breaking Out Ahead of BOC

BOC in FocusThe Bank of Canada meets for its October rate setting meeting today and while no change is expected, traders will be keeping a close eye on the latest guidance and forecasts offered. The BOC has warned recently that it is still prepared to use further tightening, if necessary, to respond to any uptick in inflation. However, with inflation falling back last month, traders are expecting the bank to keep rates on hold at 5% once again today. Additionally, dimming growth prospects are expected to be another contributing factor in the bank’s decision to keep rates on hold.BOC Needs to Protect Against Further CAD SellingWith growth readings stalling over July and August and other key indicators turning lower also, traders are now looking for the bank’s latest outlook to assess how concerned it is over slowdown risks. If traders begin moving forward their rate cut expectations in 2024 this could fuel a sell off in CAD which might well feed into higher inflation, complicating the situation for the bank. As such, the BOC needs to retain a somewhat hawkish tone in order to prevent that reaction occurring. If Macklem isn’t able to strike a firm enough tone, however, we might well see CAD coming under fresh selling pressure on the back of today’s meeting.Technical ViewsUSDCADThe rally in USDCAD has seen the market breaking back above the 1.3683 level and above the bearish trend line from YTD highs. With momentum studies bullish here, the focus is on a continued push higher and a challenge of the 1.3839 level next. To the downside, 1.3501 remains the key support to note.