Yesterday, the USD/CAD pair accelerated and rose by almost 150 points during the day. The Canadian dollar showed the greatest volatility among the major currencies, primarily due to the situation on the oil market. Therefore, the pair was gaining impulse even amid the weak positions of the US currency. However, the upward impulse disappeared and the pair drifted in anticipation of information drivers after the CAD approached the upper line (1.2640) of the Bollinger Bands indicator on the daily chart. After all, today is quite an important day for the Canadian currency, since we will learn not only the data on Canada's inflation growth, but also the results of the April meeting of the Central Bank.
But first, let's look at the reasons why the Canadian dollar weakened yesterday. It should be noted that the USD/CAD pair has been trading in a wide price range of 1.2500-1.2640 over the past month (approximately since March 19). The bears of the pair went into the area of the 1.24 mark with enviable regularity, but they returned back to the range every time. So, yesterday, the Canadian dollar managed to identify itself both below the lower limit of the range and near the upper limit of the range. Such volatility is due to the contradictory situation that has developed in the oil market. The focus is on the situation in Libya, where the National Oil Corporation (National Oil Corp) suspended the export of "black gold", declaring force majeure. At the same time, deliveries were suspended from the Hariga port, but according to representatives of the corporation, the company may extend the restrictive measures to other facilities. Experts believe that this decision can reduce oil exports from Libya by 280 thousand barrels per day to a level below 1 million barrels per day.
The reason lies in the budgetary dispute with the Central Bank of Libya. According to representatives of the corporation, the Central Bank does not make any efforts to eliminate the budget deficit in the country's oil sector. This conflict has been dragging on for several months: in particular, the regulator accused the corporation of hiding income last fall 2020. In turn, the Libyan company said that it will not transfer income until the Central Bank adopts a transparent spending policy. Yesterday's decision was just another stage in the development of the prolonged conflict. The reaction of the oil market was immediate: the price of Brent crude oil crossed the level of $68, while WTI crossed $64.30.
An additional factor supporting the oil market was the news that OPEC+ will hold only a meeting of the monitoring committee at the end of April, whereas previously, it was planned to hold a "full" meeting. This indicates that the Alliance will not revise the earlier established production volumes, which indicates a stable market situation.
The fundamental factors listed above allowed the Canadian dollar to strengthen to the level of 1.2478. However, this currency surged by almost 150 points at the start of the US session on Tuesday, reacting to the news from Capitol Hill. It can be recalled that the relevant commission of the US House of Representatives approved a bill yesterday that allows antitrust lawsuits against countries belonging to OPEC. This rule will also allow US courts to consider such cases. Hypothetically, this bill (if it becomes law) will bring the Cartel to court in connection with the reduction of oil production. Also yesterday, the corresponding initiative passed only one stage of the legislative process (the next stage is the consideration of the project by the full composition of the lower house of Congress), but even this step put pressure on the oil market, and accordingly, on commodity currencies.
Today, the Canadian dollar may also show increased volatility. At the start of the US trading session, the key data on the inflation growth in Canada will be published. According to preliminary forecasts, the March consumer price index will show a positive trend: it is expected to increase to 0.6% in monthly terms, and to 2.3% in annual terms. If this happens, this will be the strongest growth rate since February last year. If the figures come out at the forecast level, the Canadian dollar will receive tangible support, especially in the run-up to the April meeting of the Bank of Canada. Just an hour and a half after this release, the Canadian regulator will announce its decision on the interest rate, simultaneously publishing a report on the prospects for monetary policy. In another hour (15:00 Universal time), the Governor of the Bank of Canada will hold a press conference.
According to experts' general opinion, the Central Bank will keep the interest rate at the same level today. But as for QE, the issue here is debatable. Some analysts believe that the Bank of Canada will announce today a reduction in purchases of government bonds to $ 3 billion per week (current rate is $ 4 billion). In their opinion, the Canadian regulator has been giving appropriate signals for the last few weeks. In particular, the size of the balance sheet has declined. According to other analysts, the Central Bank will only present the outline of their further actions and will start taking concrete actions only in the middle of the summer. Given the pace of recovery in the Canadian economy and the growth of the oil market, traders are mostly counting on the implementation of the first option, while in my opinion, the Bank of Canada will not be ahead of the curve. In June-July, there will be a more complete outlook of the country's economic recovery.
Due to such uncertainty, it is not necessary to make trading decisions on the USD/CAD pair after the release of data on the growth of Canadian inflation. The Canadian dollar may show false price movements and reverse at the end of the Bank of Canada meeting. In general, the indicated currency will strengthen its position in the medium term. And even if the Bank of Canada does not begin to scale back QE at today's meeting, it is likely to announce such intentions. This signal is definitely "hawkish", so it can put pressure on the USD/CAD pair in the future. The main target of the downward pullback is the level of 1.2500 – lower line of the Bollinger Bands, which coincides with the Kijun-sen line on the daily time frame.
