The dollar was up on Wednesday morning in Asia after U.S. markets saw a second rout in tech stocks in less than a week, giving the dollar a boost.  “U.S. equity futures will likely be a guide to currencies today. The more equity futures fall, the larger the strength in the dollar and the yen,” Commonwealth Bank of Australia’s head of international economics Joe Capurso told.

On the other hand, currently, another injection of fiscal stimulus as soon as the end of this month is looking more likely in Canada than in the US as Trudeau’s political future looks more certain than President Trump. Hence, the BoC may not rush to release liquidity before it views the government’s plans.

The BoC chief, Tiff Macklem acknowledged last month that although there are signs of recovery, the path ahead could be bumpy, and interest rates may remain at the current record low of 0.25% at least until the end of 2022. The asset purchase program has also been driven to its limits, expanding more than the Fed’s in terms of GDP. So, markets will pay a close attention to Macklem’s speech on Friday to figure out what else could be done on the monetary front to further support the economy.

Most economists aren’t expecting any major changes to the policy until later this year at the earliest when policymakers will have more clarity on how the pandemic is spreading.

“There’s no need to do that at this point, because interest rates are still very low across the curve,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said by email.

Infection cases do not look like the second wave in Canada yet but the close borders with the US could trigger one if an effective vaccine is not approved for release soon. Moreover, exporters send 75% of their international sales to the US, therefore any economic deterioration in the States could easily spread into Canada and policymakers should be prepared for that.

According to the inflation survey released by the BoC and Macklem’s remarks about factoring public views in policy decisions at the Jackson Hole symposium last month signalled that Canada could follow suit. Thus, markets would be eagerly waiting to hear any hints on the issue this week, and more importantly, how this could be set within the current symmetrical 1-3% range target. Note that the core Consumer Price Index (CPI), which the central bank closely monitors to decide on a policy, retreated back to 0.7% y/y in August, while the headline CPI eased to 0.1% y/y.

USD/CAD 4 Hour Chart:

Support: 1.3134 (S1), 1.3034 (S2), 1.2982 (S3).

Resistance: 1.3286 (R1), 1.3338 (R2), 1.3438 (R3).

Investor’s next move largely depends on the BoC’s economic outlook. In the meantime, we expect a bullish trend for USD/CAD.