Bank of Canada (BoC) Preview: BoC poised to leave rates unchanged at 5.0%

Tomorrow welcomes the Bank of Canada (BoC) rate announcement at 2 pm GMT. Markets and economists forecast the central bank will leave the Official Overnight Rate (OOR) on hold at 5.0% for a second consecutive meeting. Markets are also almost entirely pricing in this possibility—an 85% probability in favour of another pause. In fact, up until late 2024, markets are pricing in a standstill in the OOR—a clear higher-for-longer bias with no cuts nor hikes on the table.

For tomorrow’s BoC rate announcement, hold sentiment is shared among economists at RBC Economics and ING:

RBC Economics:

‘Economic data releases since the Bank of Canada opted to forego an interest rate hike in September have been mixed, but we expect that they on net have made a hike at next week’s decision unlikely. Inflation has surprised on the upside relative to the central bank’s last forecasts in July. But most of that was driven by rising energy inflation more recently as global oil prices edged higher. The latest CPI data for September also looked decidedly better, with slower growth in the BoC’s preferred ‘core’ measures breaking a string of upside surprises’.

ING:

‘Slower-than-expected inflation, a clouded growth outlook and higher bond yields mean the BoC is likely to overlook jobs tightness and keep rates on hold on 25 October. There is still all the interest in keeping a higher-for-longer narrative alive, but markets may start to shed some doubts on it. A sustainable decline in USD/CAD looks like a 2024 story to us’.

Accompanying the rate announcement, of course, is the MPR, or Monetary Policy Report, which will reveal the latest growth and inflation forecasts. You will recall that there was a hawkish shift in expectations after the BoC rate statement recognised their readiness to take further action if needed, which was amplified by hawkish comments from Governor Macklem.

Technical Picture?

The FP Markets Technical Research Team have highlighted two key levels to be aware of ahead of the event: resistance priced at CAD1.3827 and support from CAD1.3646. Regarding trend studies, it is clear that the trend is to the upside (and has been since mid-July) and is fast approaching October highs at CAD1.3786.