When is the BoC monetary policy decision and how could it affect USD/CAD?

BoC Monetary Policy Decision – Overview

The Bank of Canada (BoC) is scheduled to announce its monetary policy decision this Wednesday at 15:00 GMT. The Canadian central bank is widely expected to lift its benchmark rate by 25 bps to 4.50% at the end of the January meeting. The markets, however, are also pricing in a small chance of the BoC leaving rates unchanged amid looming recession risks. Hence, the focus will also be on the accompanying policy statement and the post-meeting press conference, which will be looked upon for fresh cues about the future rate-hike path.

According to Dhwani Mehta, Senior Analyst and Asian Session Manager at FXStreet: “a pause in the BoC’s rate hike track could support the economy, especially after the Business Outlook Survey released by the central bank showed last week that more than 70% of Canadian consumers and two-thirds of business firms think a recession is likely in the next 12 months.”

Analysts at ING also offer a brief preview of the upcoming central bank event risk and write: “The BoC is getting close to the end point of its interest rate hiking phase. Inflation is showing signs of coming off, but the jobs market remains hot and as such we expect a final 25 bps interest rate hike. The BoC will likely characterise this as a pause, but we expect it to mark the peak as global recessionary forces are increasingly felt within Canada and inflation numbers continue to subside.”

How Could it Affect USD/CAD?

The BoC is unlikely to hint towards a more aggressive tightening and a dovish signal will be enough to exert heavy downward pressure on the Canadian Dollar. This, along with the emergence of some US Dollar buying, supports prospects for some upside for the USD/CAD pair. That said, the recent bullish run in crude oil prices might continue to underpin the commodity-linked Loonie and cap any meaningful gains for the major, at least for the time being.

Furthermore, traders might also refrain from placing fresh directional bets around the USD/CAD pair and move to the sidelines ahead of the crucial FOMC monetary policy meeting next week. Hence, any immediate market reaction is more likely to remain muted and fade rather quickly.

Key Notes

 •  Bank of Canada Preview: The final one, with a pause ahead?

 •  BoC Preview: Forecasts from eight major banks, edging towards a final rate hike

 •  USD/CAD Forecast: Bias seems tilted in favour of bearish traders, BoC decision awaited

About the BoC Interest Rate Decision

BoC Interest Rate Decision is announced by the Bank of Canada. If the BoC is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the CAD. Likewise, if the BoC has a dovish view on the Canadian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.