The announcement of the cancellation by Washington with the grace period for buyers of Iranian oil not only became a catalyst for more than 3% of Brent and WTI rally, but also allowed the currencies of black gold exporting countries to strengthen their positions in the race for the title of the best performer among the G10 monetary units. The Canadian dollar managed to intercept the leader's yellow jersey from the British pound but the presence of geopolitical risks and concerns about the central dovish rhetoric at the April 24 meeting did not allow the USD/CAD sellers to spread their wings.
The modest success of "Looney" against the background of more than 30% of the rally Brent and WTI since the beginning of the year at first glance look strange. However, the economy of the maple leaf country does not live on oil alone. Non-energy exports fell 4% in February to their lowest level in 12 months and coupled with a slowdown in GDP to 0.1% QoQ in the fourth quarter, which forces the Central Bank to be extremely cautious. Indeed, the consumer prices in March accelerated from 1.5% to 1.9% and core inflation from 1.9% to 1.97% y/y. This exceeds the forecast of Bloomberg experts by 1.8% but the first indicator increased the rate is due to oil and the second has barely moved from its 1.9% average last year. Inflation is not too high and not too low, which allows BoC to sit on the sidelines.
Dynamics of Canadian Inflation
During its previous meeting, the regulator noted that the monetary policy in the current environment should remain stimulating and the value of the overnight rate of 1.75% to be below the neutral level between 2.5 and 3.5%. Stephen Poloz stressed that further decisions of the Bank of Canada will depend on incoming data and the presence of headwinds makes BoC sit on the sidelines. A significant shift in the world outlook of the central bank still counting on 2-3 acts of monetary restriction in 2019 at the end of 2018 should be viewed as a "bearish" factor for the loonies. If it were not for the rapid rally of oil, its positions would be significantly worse than the current ones.
Uncertainty about the ratification of the US agreement with Mexico and Canada by the US Congress as concluded by Donald Trump also exerts pressure on the Canadian. According to the study of the International Trade Commission, it will add 0.35 pp to GDP and increase the number of jobs by 176 thousand. If the lawmakers do not approve the contract, new negotiations will have to be held. Uncertainty about the outcome of the dialogue between Washington and Ottawa did not allow the Loonie to strengthen in the past year.
Thus, factors such as the reaction of oil to the decision of the United States to cancel the grace period for buyers of Iranian oil, rumors from the US Congress about the ratification of the NAFTA replacement agreement and the proximity of the Bank of Canada meeting allow loonies to claim the title of the most interesting currency of the week by April 26. If BoC decides to put pressure on its currency with the help of signals of a potential reduction in the overnight rate, then the USD/CAD quotes will be able to break through the upper limit of the consolidation range of 1.3295-1.3395.
Technically, it formed in the framework of the "splash and shelf" pattern. Moving the pair out of the trading range is fraught with target sales of 161.8% or 78.6% using the AB = CD or Gartley patterns.
USD / CAD daily chart
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