Shift in BOC outlook
Yesterday the Bank of Canada hiked rates by 25bps as expected to 1.75%. The interesting thing going into this rate announcement was how would the BOC view the poor September CPI data at 2.2% YoY vs 2.6% expected. See here. Adam pointed out at the time that, despite the soft readings, the core readings were still averaging 2.0%. In the release the Bank of Canada stated that the rates will need to rise to a neutral stance and they dropped the reference to a gradual approach to hikes. See here again. The nominal rates is around 2.5%-3.5% in line currently on target inflation levels. All in all this was a slightly better than expected outlook from the BOC and CAD is likely to remain bid over the next couple of sessions. Although household debt is a concern for the BOC, they are expressing a lot of confidence in their modelling process. The bottom line is that they have signalled a quicker succession of rate hikes.
Potential pairs to trade
One pair to trade it against is the struggling EUR with the Italian budget problem still weighing on the ECB. A short EURCAD from the 50 EMA which meets horizontal support and the 61.8% Fib level of the move down looks good for a short, though the ECB meeting is a risk event for today, so it may not be the best time to trade the pair right now. Although certainly one to have on your watchlist.
The AUDCAD might be worth considering depending on where the price returns too today. An entry around the 50% Fib and horizontal support area looks good for a short too.
In trading CAD keep your eye on Oil. Oil has been tumbling recently, but support is below. If Oil keeps falling through the June and August lows then CAD is going to pressured. Therefore, you must keep the bearish oil market in mind, as oil and CAD has a very strong correlation. Adam flagged the bigger technical picture for Oil overnight here.
