Dollar/CAD is trading under 1.24 ahead of the BOC decision. The team at TD sees a big air pocket on the way down.

Here is their view, courtesy of eFXnews:

TD FX Strategy Research notes that the focus this week for CAD traders shifts from data to policy, with the BoC meeting Wednesday.

“We believe that the Bank will hold its powder dry but look for it to deliver a hawkish hold, signaling another hike next month and room for more next year.

The break of the recent lows now opens up some air pockets to 1.213. Still, given the rapid adjustment in Canadian rates and our view that the BoC remains onhold, we look for some profit taking first,” TD argues. 

“We are also cautious about the possible drag a 10% CAD appreciation will have on inflation, which favors hiking next month. Even so, the upbeat growth momentum and softer USD backdrop should continue to favor selling into USDCAD rallies.

We look to get short USDCAD on moves back towards 1.26,” TD advises.