29.05.201902:22 Forex Analysis & Reviews: USD / CAD. Canadian awaiting Bank of Canada verdict and Friday data

On the eve of the May meeting of the Bank of Canada, Loonie demonstrates the upward impulse again, returning to the borders of the 35th figure. However, the expectation of a meeting of members of the regulator has more likely background pressure on the Canadian currency - the pair USD/CAD is growing primarily due to the restoration of the greenback and the ongoing trade conflict between the US and China. The Central Bank of Canada can only strengthen this growth, although, by and large, no major changes are foreseen at the May meeting.

Generally, the market fell into the trap of its own expectations after the release of the latest data on inflation. Let me remind you that the annual inflation rate in Canada rose in April by 2% compared with the March figure of 1.9% and 1.5% in February. Positive inflationary dynamics returned to traders the hope of toughening Stephen Poloz's rhetoric about monetary policy prospects. The Bank of Canada has raised interest rates five times since July of the year before, but has not taken any action over the past four meetings. In addition, at the April meeting, the regulator excluded from the text of its accompanying statement a phrase about the further need to tighten monetary policy. After that, even rumors about the likelihood of the reverse step began to spread on the market. But over time, these conversations subsided.

In other words, these market fears were largely leveled, after which the Canadian was stuck in a flat waiting for the news impulses. An unexpected increase in April inflation "stirred up" market participants, and a pair of USD /CAD declined to the middle of the 33rd figure, updating the three-week minimum. But the euphoria did not last long - the next crisis in relations between Beijing and Washington had a significant pressure on the Canadian dollar. Escalation of the trade war put an end to tightening monetary policy in the leading countries of the world - and Canada is no exception.

After raising tariffs and history with Huawei, China launched a rather unexpected counter-strike, hinting at restricting the export of rare metals. Rumors about this first appeared in the press, but today, the Chinese authorities have actually confirmed such intentions. Thus, one of the representatives of the Ministry of Trade said that Beijing would primarily focus on domestic demand, but China is ready to export rare items to other countries, but "within reasonable limits." It is worth recalling that these metals are actively used by Americans in radio electronics, instrument making, nuclear engineering, mechanical engineering, chemical industry and metallurgy, that is, almost everywhere, from the production of mobile phones to the production of airliners.

To put it simply, the current degree of confrontation in US-China relations suggests that it is still too far from a trade truce - and this fact will have a corresponding impact on members of the Canadian Central Bank. Stephen Poloz has repeatedly expressed concern about world trade in the light of this conflict - and given the recent events, he is unlikely to change his rhetoric in this regard.

With regard to macroeconomic statistics, there is also not everything is clear. As mentioned above, Canadian inflation shows a positive trend, but overall economic growth leaves much to be desired. In the fourth quarter of last year, the country's GDP grew by only 0.4% year-on-year, while final domestic demand was even weaker, falling by 1.5%. Release of more recent data - for the first quarter of this year - is expected only on Friday, May 31, that is, after the May meeting of the Bank of Canada. Therefore, members of the regulator will be able to assess the dynamics of only indirect economic indicators.

In particular, employment growth in the first quarter was steady, but the retail sales indicator indicates a low level of consumer spending. Of course, the growth of the oil market can give a positive impetus to economic growth in Canada: according to the general opinion of experts, GDP growth in the first quarter will increase to 1.2% in annual terms, while according to the Canadian regulator's own forecasts. This figure should grow by only 0.3% . If this forecast comes true, then the Canadian dollar will receive significant support. But all this will be (if it is) already after the May meeting, at which the regulator is most likely to take a cautious - and possibly - "dovish" position, complaining about the uncertainty about the prospects for the global economy.

Thus, the Canadian dollar is largely ready for the next meeting of the Central Bank: Stephen Poloz will either secure USD/CAD in the 35th figure, or return the pair in the range of 1.3390-1.3450. However, following a volatile reaction, a large-scale continuation is unlikely to follow - the general situation is too ambiguous for any global conclusions. In conclusion, Friday's data on the growth of the Canadian economy can cause a broader response, in contrast to the rhetoric of Poloz, which is largely predictable.