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 and is expected to reduce government bond purchases to C$1 billion a week from C$2 billion. The BoC is also anticipated to upgrade its inflation and growth forecasts in the accompanying policy statement, setting the stage for an interest rate hike during the first half of 2022. This will be followed by the post-meeting press conference, where comments from Governor Tiff Macklem will be looked upon for the central bank's outlook on interest rates.

How Could it Affect USD/CAD?

The money markets have been pricing the first rate hike in April 2022 as against the BoC projection that policy tightening won't happen until the second half of the next year at the earliest. Against the backdrop of bullish crude oil prices, signs that the BoC is turning more hawkish should be enough to provide a strong boost to the commodity-linked loonie.

That said, the recent recovery in the USD/CAD pair reflects the uncertainty of whether the BoC will address rate hikes. Macklem could push back against market expectations for a more aggressive policy tightening, which should trigger an aggressive short-covering move around the major.

Heading into the key event risk, the USD/CAD pair was seen flirting with a resistance marked by the top boundary of a downward sloping channel extending from September swing highs. A less hawkish BoC should allow the pair to break through the mentioned barrier and climb back towards challenging the very important 200-day SMA, currently around the key 1.2500 psychological mark.

On the flip side, the 1.2370-65 horizontal zone should protect the immediate downside. Sustained weakness below might be seen as a fresh trigger for bearish traders and expose the ascending channel support, currently around the 1.2225 region. The 1.2320-15 region, closely followed by the 1.2300 mark, should act as intermediate support ahead of June 23 swing lows, around mid-1.2200s on the way down.

Key Notes

 •  Bank of Canada Rate Decision Preview: Inflation prospects headline policy review

 •  USD/CAD Outlook: Awaits hawkish BoC before the next leg down

 •  USD/CAD jumps to near two-week tops, further beyond 1.2400 ahead of BoC

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.

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