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 expected to leave its benchmark interest rate unchanged at 0.2%. That said, some market participants anticipate an imminent start of the tightening cycle in January amid a surge in Canada’s annual inflation rate to a three-decade high in December. Apart from the policy decision, the accompanying policy statement and the post-meeting press conference will be looked upon for clues about the central bank's policy outlook.

Analysts at NBF offered their take on the upcoming policy decision and explained: “We are officially moving our call for the first Bank of Canada interest rate hike from March to January. That said, unlike other forecasters, we don’t see the BOS or December CPI report as having materially changed the policy trajectory for the rest of the year. Thus, we remain confident in our call for 5 interest rate hikes in 2022, with the overnight target hitting 1.50% by year-end.”

How Could it Affect USD/CAD?

Heading into the key event risk, bullish crude oil prices acted as a tailwind for the commodity-linked loonie and dragged the USD/CAD pair back closer to mid-1.2500s. A surprise rate hike should not come as a surprise, though should be enough to provide a goodish lift to the Canadian dollar and set the stage for an extension of this week's slide from the 1.2700 mark.

Conversely, a less hawkish tilt could lend some support to the major. That said, any immediate market reaction is likely to remain limited as the focus would then shift to the outcome of a two-day FOMC meeting, scheduled to be announced later during the US session. Nevertheless, the announcement should infuse some volatility and produce some meaningful trading opportunities around the pair.

Key Notes

 •  Bank of Canada Rate Decision Preview: No surprises for a 25bps rate hike

 •  BoC Preview: Forecasts from 10 major banks, to hike or not to hike?

 •  USD/CAD Analysis: 200-DMA/1.2500 mark holds the key, focus remains on BoC/FOMC

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.