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 latest monetary policy update at 14:00 GMT this Wednesday and is widely anticipated to leave its benchmark interest rates unchanged at 0.25%. Economic developments since the June meeting suggest that BoC would maintain an upbeat tone and further cut back on its pandemic-era quantitative easing (QE) program to C$2 billion from C$3 billion.

In the accompanying policy statement, the BoC is expected to maintain its forward guidance for the first interest rate hike in the second half of 2022. Apart from this, policymakers will also release the latest economic projections. This will be followed by the post-meeting press conference at 15:00 GMT.

How Could it Affect USD/CAD?

Market expectations for a major shift in the policy stance are low, suggesting that the decision is unlikely to be a major game-changer for the USD/CAD pair. That said, the BoC could still opt to adopt a more cautious tone amid worries about the spread of the highly contagious Delta variant of the coronavirus. This, in turn, should hurt the Canadian dollar and set the stage for an extension of the pair's recent strong recovery move from the vicinity of the key 1.2000 psychological mark, or multi-year lows touched in June.

Adding to this, speculations that the Fed could tighten its monetary policy earlier than anticipated should continue to act as a tailwind for the US dollar and lend some support to the major. Hence, the key focus will remain on Fed Chair Jerome Powell's testimony before the House Financial Services Committee later during the US session. Nevertheless, the fundamental backdrop favours bullish traders and supports prospects for additional gains.

From current levels, any meaningful slide below the 1.2500 mark might now be seen as a buying opportunity and remain limited near the 1.2450-40 horizontal support. The latter also marks the 200-hour SMA and should now act as a key pivotal point for short-term traders, which if broken decisively will negate the near-term positive bias. On the flip side, momentum beyond the 1.2525 area has the potential to push the pair further towards monthly tops, around the 1.2590 region. Some follow-through buying beyond the 1.2600 mark will set the stage for a test of April swing highs, around the 1.2650-55 region.

Key Notes

 •  Bank of Canada Preview: QE taper to pave the way for a stronger CAD

 •  USD/CAD Weekly Forecast: Is the Canadian dollar a one-trick pony?

 •  USD/CAD Analysis: Bulls turn cautious ahead of BoC decision, Powell’s testimony

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.