BoC Monetary Policy Decision – Overview
The Bank of Canada (BoC) is scheduled to announce its monetary policy decision this Wednesday at 15:00 GMT and is expected to leave the key interest rate target at the rock-bottom level of 0.25%. In the absence of the post-meeting press conference, the focus will be on the accompanying rate statement for fresh clues about the central bank's outlook on interest rates. The market bets for a possible rate hike in Q1 have been increasing, suggesting that there is a risk of disappointment if the Canadian central bank maintains its current monetary policy stance.
Analysts at Citibank offered their take on the upcoming meeting and wrote: “We expect the BoC to leave rates unchanged at 0.25% though we will watch for signs the BoC could be considering a rate rise even earlier than the latest guidance for the ‘middle quarters of 2022’. After the hawkish October surprise, we expect a slightly hawkish tone to this meeting with risks tilted to an even more hawkish shift, with BoC perhaps signaling openness to a Q1 hike.”
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 to a near three-week low on Wednesday. A more hawkish shift should provide an additional boost to the Canadian dollar and set the stage for an extension of the pair's corrective pullback from a multi-month high touched last week.
Given the aggressive market pricing for an early rate hike, a mention of the risks associated with the emergence of the new Omicron variant of the coronavirus would be enough to weigh on the Canadian dollar. This, along with the underlying bullish sentiment surrounding the US dollar, will set the stage for the resumption of the USD/CAD pair's uptrend witnessed since October.
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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