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 14:00 GMT. The Canadian central bank is widely expected to hike its benchmark interest rate by 50 bps for the first time since May 2000 and announce quantitative tightening (QT) to control spiralling inflation. It is worth recalling that Canadian CPI remained above the BoC's 1-3% range for the 11th consecutive month and accelerated to 5.7% in February. Moreover, the jobless rate is the lowest since at least the mid-1970s, leaving no room for any dovish surprise. Apart from this, investors will take cues from the accompanying monetary policy statement and the post-meeting press conference.

Analysts at Wells Fargo offered their take on the Canadian central bank's likely policy outlook: “We expect BoC policymakers to continue lifting interest rates and are likely to cite the overall strength of the economy as justication for tighter policy. We also expect the BoC statement to refer to a closing output gap, which should also provide policymakers with rationale to keep raising interest rates. Given the Fed is likely to pick up the pace of interest rate hikes in the near future, there is certainly a possibility the BoC opts to raise policy rates 50 bps at its next meeting. Consensus forecasts believe the Canadian economy is strong enough to handle a 50-bp hike, while financial markets are priced for around 45 bps of tightening. Given our view for a 25-bp hike, the Canadian dollar could weaken in the immediate aftermath of the decision.”

How Could it Affect USD/CAD?

Heading into the key event risk, the USD/CAD pair jumped to a near four-week high amid sustained US dollar buying interest. Given that a 50 bps rate hike and QT are fully priced in the markets, a more hawkish BoC commentary is needed to hinder the pair's ongoing recovery move from the 1.2400 mark, or the YTD low touched earlier this April. Conversely, a dovish hike - though seems unlikely - would be enough to weigh heavily on the Canadian dollar and provide an additional boost to the major. This, in turn, suggests that the path of least resistance for spot prices is to the upside.

Key Notes

 •  Bank of Canada Preview: Three CAD-shaking things to watch out for beyond the 50 bps hike

 •  BoC Preview: Forecasts from 10 major banks, hard to argue against a 50 bp hike

 •  USD/CAD Analysis: Pivots around 200-DMA, traders await BoC for fresh impetus

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.