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 lift its policy rate by 75 bps to 4% at the end of the October meeting to keep inflation expectations anchored. Apart from this, investors will take cues from the accompanying monetary policy statement and the post-meeting press conference for clues about the central bank's policy outlook

Analysts at Citibank offer a brief preview of the event and explain: “While it is a very close call between a 50 bps hike or a 75 bps hike, we still lean towards expecting a 50 bps hike but still expect a significant hawkish emphasis that rates are still likely to rise further and expect another 50 bps hike in December taking the policy rate to 4.25% before a pause, but with risks that hikes continue into 2023 and reach a higher terminal rate.”

How Could it Affect USD/CAD?

Ahead of the key central bank event risk, a combination of factors drag the USD/CAD pair to a three-week low during the first half of the European session on Wednesday. An uptick in crude oil prices underpins the commodity-linked loonie and exerts downward pressure on the major amid the prevalent US dollar selling bias.

The BoC could signal a dovish tilt amid looming recession risk, which could prompt some short-covering and lift the USD/CAD pair back above the 1.3600 mark. That said, BoC Governor Tiff Macklem had said that the primary goal of the bank is to restore price stability, suggesting that the immediate market reaction is likely to be short-lived.

Conversely, hints towards a more aggressive tightening, despite cooling inflation and deteriorating economic outlook, should be enough to provide a fresh boost to the Canadian dollar. This, in turn, would pave the way for an extension of the USD/CAD pair's recent sharp pullback from the 1.3975-1.3980 area, or the highest level since May 2020 touched earlier this month.

Key Notes

 •  BOC Preview: Getting ready for a dovish pivot?

 •  BoC Preview: Forecasts from 10 major banks, taking what is offered, a 75 bps hike

 •  USD/CAD to bounce but not as much as expected if the BoC does pitch for 50 bps – MUFG

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.