Bank of Canada Poised for Hawkish Message, Bolstering Bullish CAD


  It is very likely that the Fed will plan to quit a Quantitative Easing (QE) policy on November 3, but the Dow Jones Index and S&P 500 Index hit a record high again recently, which seems not to be affected negatively from the plan, because of the better-than-expected achievements by most recent listed companies. In addition, the Feb has no hurry of hiking interest rate in the short term. So traders reckon that the US stocks may continue to rise.

  Federal Reserve Chairman Jerome Powell said last Friday that the Fed should begin to reduce the purchase of treasury bond, instead of taking an interest-rate-related measure, indicating that it‘s not the time to hike interest rate and staying patient is significant now. The US dollar index may keep weakening due to Powell’s dovish message. It is believe that a definite interest rate hike signal could boost the future US dollar index. The index is forecast to remain steady at a high level with constantly fluctuation.

  This week witnesses three central bank‘s meetings about interest rate, with Bank of Japan and Bank of Canada’s meetings on Wednesday, and European Central Bank‘s on Thursday. As far as I’m considered, the Bank of Canada may deliver a hawkish message in the upcoming meeting. With overall rising energy prices, the local economic data performs perfectly, making the inflation rate jump to 4.4%. Under the circumstance, the Bank of Canada is poised for an interest rate hike in advance. Therefore, the bank‘s clear intention to increase it’s interest rate in advance is conducive to the future CAD.

  Thanks to an increase in energy prices, investors are confident of the CAD. If the Bank of Canada shows a hawkish message again on Wednesday, the CAD is bound to become stronger, gaining more power to continue to spiral upwards in the future. In terms of the future trading strategy, it‘s suggested that you should buy CAD against the bearish currencies (except for NZD) you think. Personally speaking, I’m looking forward to a further increase in CAD against the JPY, because of a disparity in strength between them. Thus the currency pair features high odds for profit and low risks.

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