Canadian Dollar Falls to 4 Year Low Ahead of BOC Meeting

On Tuesday the Canadian dollar fell to its lowest levels against the U.S. dollar since September 2009 amid speculation that the Bank of Canada will communicate a more dovish tone at its upcoming meeting on January 22nd.

The Loonie, as the Canadian Dollar is known, owing to the bird on the Canadian $1 coin, weakened early this month after Stephen Poloz, Canada’s central bank governor, cited low inflation among his primary concerns for the economy.

During an interview on CBC’s The Lang and O’Leary Exchange, Poloz stated, “I would say I’m most worried about inflation and how it’s underperforming all of our models.”

Disappointing employment data also added pressure to the Canadian dollar earlier in the month, with the December unemployment rate rising to to 7.2 percent.

The U.S. dollar strengthened broadly on Tuesday as expectations increased that the Federal Reserve may soon further reduce its bond-buying stimulus.

The Federal Reserve announced in December that starting in January, it will taper its monthly bond buying to $75-billion from the $85-billion pace started in September 2012.

The Canadian dollar pared some its losses on Tuesday after Statistics Canada reported that Canadian Manufacturing Sales beat expectations, rising by 1.0 percent. Analysts had expected the figure to come in at 0.3 percent. The prior month's figure was revised lower to 0.7%.

Also reported on Tuesday, Canadian Wholesale Sales missed expectations, coming in at 0.0%. Analysts had forecast a rise of 0.3% while the prior months figure was revised lower to 1.2%.

The Bank of Canada (BOC) is due to meet on Wednesday and analysts expect that the benchmark rate will remain unchanged at 1 percent.  At the meeting this week, investors will be watching for the affirmation of a more dovish tone in the policy statement and accompanying monetary policy report.

USD/CAD Daily Chart

Looking at the USD/CAD daily chart we can see that an uptrend has been in place since November and that price is well above both the 50 and 200 period moving averages. Momentum oscillator RSI is at 71, suggesting potentially overbought conditions.