• The Bank of Canada is set to leave rates unchanged in its October meeting. 
  • Governor Macklem will likely stress growing uncertainty due to coronavirus.
  • Canada's recent upbeat performance may remain a side story.

Winter comes early in Canada – the mercury drops rapidly in the northern country and COVID-19 cases are rising. As the same phenomenon is seen in the US – on which the Canadian economy heavily depends – that may push the Bank of Canada toward a cautious outlook in its rate decision.

Uncertain future vs. upbeat performance 

Governor Tiff Macklem and his colleagues publish are set to leave the interest rate unchanged at 0.25% but may lay out hints about future policy via their quarterly Monetary Policy Report (MPR) which includes new forecasts. Graphs such as these will likely be on their minds.

The increase in coronavirus cases may cause consumers to shy away from buying, prompt companies to halt hiring and trigger restrictions, and even lockdowns. While Canada is doing better than its southern neighbor, it is exposed to demand coming from south of the border. Moreover, the recent flareup arrives early in the autumn, before the worst of winter arrives. 

Another reason to be cautious about Canada's prospects is the upcoming elections in the US. Markets are concerned about a scenario where both President Donald Trump and rival Joe Biden declare victory and America's streets become chaotic. While the chances are low, Macklem and Deputy Governor Carolyn Wilkins – who will also attend the post-decision press conference – will likely be wary of the chance of such an event.

Uncertainty about the future contrasts the recent upbeat figures published in Ottawa. Canada's Unemployment Rate unexpected fell to 9% in September as the nation added 378,200 jobs last month, pointing to a robust recovery.

The BOC's main mission is keeping prices stable, and core inflation has also surprised to the upside, rising from 0.8% in August to 1% in September. Retail sales have been more stable, advancing 0.4% in each of the past two months.

Source: FXStreet Calendar

USD/CAD Reaction

If the BOC releases cautious forecasts that point to a slower recovery – and also accompanies it by stating uncertainty is high – the loonie would fall and USD/CAD would rise. This scenario has the highest probability.

If Macklem and co. strike a balance between recent growth and slower yet acceptable levels of recovery afterward, USD/CAD could chop around and swiftly return to moving on other factors such as the general market mood and oil prices. Barrel prices have been remarkably stable of late

In the unlikely case that the bank focuses on the bouncing labor market and conveys an upbeat message, USD/CAD would fall. 

Conclusion

The BOC is set to leave rates unchanged but rock markets with its quarterly report which includes new forecasts and is accompanied by a press conference. There are significant changes that Governor Macklem emphasizes the uncertain future over the recent recovery, weighing on the loonie.

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD retreating from around 0.7000

AUD/USD retreating from around 0.7000

The AUD/USD pair hit 0.7008 before retreating, following US stocks’ behavior. Wall Street benefited from easing US government bond yields but ended the day mixed ahead of critical US data.

AUD/USD News

EURUSD bulls losing the battle around 1.0200

EURUSD bulls losing the battle around 1.0200

EUR/USD edged higher on Monday, but remains unable to clear the 1.0200 threshold, trading a handful of pips below the figure. The energy crisis in Europe and tensions with Russia undermined demand for the EUR.

EUR/USD News

Gold bulls looking to overcome the $1,800 barrier

Gold bulls looking to overcome the $1,800 barrier

Gold advanced on Monday, reaching an intraday high of $1,790.01 a troy ounce during the American afternoon, holding nearby. The greenback gave back the Nonfarm Payrolls report-inspired gains and eased on the back of retreating US government bond yields.

Gold News

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Are your bags packed for FOMO Season?

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Are your bags packed for FOMO Season?

The crypto market shows strength to start the second trading week of August, and key levels have been identified. Although it's still early market, current prices may be the ultimate discount in hindsight.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures