The Bank of Canada is expected to announce a continuation of its asset tapering on Wednesday, but its latest forward guidance will be key to the CAD reaction and its near-term direction.
Although strong inflation and Canadian jobs data should keep the BoC on track to begin raising rates in the second half of 2022, there's a risk of a pushback against current market pricing, which has an additional 16bpts by March, and 30bpts by April BOCWATCH.
A pushback would risk a short-term CAD decline, but the BoC should still be on course to raise rates before many of its peers, including the U.S. Federal Reserve, so any USD/CAD rebound should attract sellers.
The recent USD/CAD low since June 23, when it hit 1.2253, was 1.2289.
USD/CAD has already broken the 61.8% Fibo retracement of 1.2007-1.2949 at 1.2366 (although currently trading back above it), so there's potential for 76.4% at 1.2229 and a full retracement thereafter.
Resistance lies with the broken 50% Fibo retracement at 1.2478 and the 200-daily moving average at 1.2496.
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