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 anticipated to deliver a jumbo, 75 bps rate hike in an effort to keep inflation expectations anchored. Investors will further take cues from the BoC’s quarterly Monetary Policy Report and Governor Tiff Macklem's comments at the post-meeting press conference.

According to analysts at Citibank: “A 75 bps rate hike in July is the most likely scenario, taking policy rates to 2.25% this week. Beyond this week, we expect 50 bps hikes from both the BoC and the Fed at their September meetings and for policy rates in Canada to reach 3.5% by year-end. Given the recent market focus on recession risks, this is likely to be a key topic of questions at Governor Macklem’s press conference.”

How Could it Affect USD/CAD?

Ahead of the key event risk, a goodish rebound in oil prices from a nearly five-month low offered some support to the commodity-linked loonie. This, along with modest US dollar profit-taking, kept the USD/CAD pair depressed near the 1.3000 psychological mark. A more hawkish BoC stance is already priced in the markets, increasing the risk of disappointment. On the other hand, a neutral stance, or a dovish message, would be enough to inspire the CAD bears. This, along with the US CPI-led USD volatility and oil price dynamics, should help determine the next leg of a directional move for the major.

From current levels, any subsequent decline could attract some buying near the 1.2940-1.2935 support zone. The next relevant support is pegged near the 1.2900 round-figure mark, which if broken would negate any near-term positive bias and make the USD/CAD pair vulnerable. The downward trajectory could then drag spot prices towards the monthly low, around the 1.2835 area, en-route the 1.2820-1.2815 support.

On the flip side, the 1.3050 region might continue to act as an immediate strong hurdle ahead of the 1.3080-1.3085 supply zone. Some follow-through buying beyond the 1.3100 mark would be seen as a fresh trigger for bulls and set the stage for a move towards the 1.3155-1.3160 intermediate resistance. The USD/CAD pair could appreciate further to the 1.3200 mark before climbing to the 1.3270 area.

Key Notes

 •  BOC Preview: USD/CAD set to surge on a dovish message after a 75 bps hike

 •  BoC Preview: Forecasts from nine major banks, hiking interest rates aggressively

 •  USD/CAD: Spikes to the 1.31-1.33 area in the near term are possible – ING

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.